4 ULIP 'sales pitches' to beware of

We have always maintained that buying life insurance should not be treated as a year-end `tax-saving' event. Insurance has a vital role to play in just about every investor's financial planning. Hence, investors would do well to put in an adequate amount of time and effort while buying insurance. The same would entail comparing products from various insurers; also, interactions with insurance advisors would be integral to the process.

Given the trend in recent times, there is a fair chance that the advisor would recommend an unit linked insurance plan (ULIP). In this article, we present 4 ULIP `sales pitches' that insurance advisors are most likely to use and investors must beware of

• Premium has to be paid only for the first 3 years

Often insurance advisors pitch ULIP's claiming that premium payments need to be made only for the first 3 years. The policy will be in force even if premium payments are discontinued thereafter. That's only part of the picture. The other relevant bit is that, though the policy will continue to be in force, mortality charges will be deducted from the ULIP's corpus in the future as well.

Put simply, the insurance company will continue to make necessary deductions from the policy's total accumulated money. Hence, the accumulated amount will continue to erode with each unpaid premium. Only the balance amount (net of mortality charges) will continue to be invested in the markets. Furthermore, when the ULIP's corpus is insufficient to service the mortality charges, the policy will cease, thereby depriving the investor of an insurance cover.

• ULIPs make cheaper buys

Mutual fund distributors have been known to mis-sell new fund offers (NFOs), i.e. new mutual fund schemes by using the Rs 10 net asset value (NAV) pitch. Investors are convinced that buying into an NFO makes a cheaper buy on account of the lower (Rs 10) NAV. Investors tend to draw parallels between stock investing and mutual fund investing and fall for the bait. In fact, this is one of the most common fallacies in the mutual funds segment.

Now insurance advisors have `borrowed' the same sales pitch from mutual fund distributors for selling new ULIP offerings. Investors are conned into believing that buying into new ULIPs (which are market-linked investments like mutual funds) translates into a cost-effective purchase.

• Investors are provided with dedicated fund managers

Like mutual funds, ULIP monies are also managed by fund managers. Fund managers are responsible for making investment decisions for the entire ULIP corpus i.e. for the monies invested by all unit holders in the given ULIP.

However, insurance advisors often claim that ULIP investments will be managed by dedicated fund managers. In other words, ULIPs are likened with investments under a Portfolio Management Service (PMS). In the latter, the investor has access to a dedicated fund manager who manages the portfolio in line with the mandate provided by the investor.

• ULIPs offer guaranteed returns

ULIPs are market-linked investment avenues and are susceptible to the same risks that any market-linked investment avenue would. Broadly speaking, a downturn in equity and debt markets would adversely affect the performance of an ULIP. Of course, the fund manager's skill sets, the ULIP's portfolio structure and the investments will play a part in determining how it eventually fares.

Thanks to the upsurge in equity markets over the last few years, insurance advisors have begun pitching ULIPs as products offering guaranteed returns. Nothing could be farther from the truth. Investors should be wary of such fraudulent claims.

source: personalfn

GOLD ETF - A SMART WAY TO INVEST IN GOLD

The 2008-09 budget decision to introduce Gold Exchange Traded Funds with `gold' as the underlying asset will facilitate buying and selling of the yellow metal, even in the smallest of units. This is a welcome move that signifies India is catching up with developed markets.

What is ETF?

ETF is normally a MF scheme that is listed on stock exchange & traded like common stock. The traded price of the ETF units on the stock exchange reflects, before expense, the value per unit of underlying assets of the fund. They enable investors to gain exposure to indices or underlying assets at a lower cost than any other form of investing.

Investing in Gold

Gold is one of the most widely held precious metal, appeal to almost all kinds of investors. It provides investors a different asset class to diversify their portfolio and a hedge against inflation. It is also used by Central banks as a substitute of currency to hedge against financial & credit risk. Apart from this gold is also used for jewellery and some industrial purpose.

Gold Demand pattern of Gold in India

• In 2005, India accounted for 22% of global gold jewellery demand and 35% of global retail investment demand.

• India holds 10 % of world gold stock (15000 Tonnes)

• Jewellery accounts for 60% of total demand in India and gold coins & crude gold accounts for 30-35% of total demand.

What is GOLD ETF?

Gold ETFs represent an easy way to gain exposure to the gold price, without the hassle of buying gold directly. Investors can buy or sell units in the Gold ETF, with each unit representing a certain gram's of gold held by the fund. Though investors can buy Gold ETF units from the fund house during the initial offer period, subsequent transactions will have to be routed through the stock exchanges, where the units will be listed and traded at NAV-based prices. Like other mutual fund products, Gold ETFs will publish their NAV on a periodic basis and this would be linked to the prevailing gold price. Under the present regulations, Gold ETFs in India will track London gold prices expressed in US dollars, and will represent 'standard' gold of 99.5% purity.


GOLD ETF versus Physical Gold

S. No.	Parameter	Physical Gold	Gold ETF
1	Purchasing Gold	Physical	Dematerialized
2	Premium for Purchase	High/Very High	N.A.
3	Making charges	High/Very High	None
4	Quantity that Can be purchased	Any amount/coins From 5gm	Multiple of 1gm
5	Impurity Risk	High/Low	Nil
6	Storage	Locker	Demat A/c
7	Risk of theft	High	No Risk
8	Liquidity	Low	High

Why invest in GOLD ETF?

1. GOLD ETF will provide a screen-based platform to investors to accumulate quality gold in small lots. For example, a father wanting to gift gold to his daughter need not but the metal (or the jewellery) only when he intends to gift her, instead he can start buying in small lots.

2. Gold has proven to be a good hedge against inflation and maintained a long term value. Gold is not highly correlated with other financial assets such as stocks, currency and bonds, which are directly affected by the country's economy.

3. It offers a good diversification and reduces overall risk/volatility of investments.

4. Gold has a ready & wide acceptability. Hence, exchanging it for cash or raising money against gold is easier.

5. Gold ETF backed by the standard hallmark quality can provide a safe & liquid investment avenue through price volatility in the short term cannot be eliminated.

Disadvantage of investing in GOLD ETF

One, a badly timed purchase can expose the investor to the risk of value erosion, if gold process decline. Second returns on Gold ETFs may be lower than those on physical gold by virtue of management fees, transaction costs and other operational expenses levied by the fund house on the fund's NAV. Third, if the ETF units are not actively traded in the stock market, you may not be in a position to exit your holdings at the time or price of your choice.


Tax Implication of investing in Gold ETF

S. No.	Tax	Gold ETF
1	Wealth Tax	Not Applicable
2	Short Term Capital Gain Tax	Applicable Before 1 year
3	Long Term Capital Gain Tax	Applicable After 1 year

Who can invest in GOLD ETF?

1. An Individual Resident/ Non Resident Indian.

2. A Non-Individual: - Firm, HUF, Banks, Trusts, Companies etc.

An investor who applies for GOLD ETF should have a Demat Account

source: Investment Monitor (Magazine)

Wednesday, December 31, 2008 10:00 Hrs IST HDFC MF declares dividend for its 90 days plan

Record date for dividend is 5 January 2009

HDFC Mutual Fund has announced 05 January 2009 as the record date for declaration of dividend under dividend option of HDFC FMP 90D September 2008 (4), a fixed maturity plan under HDFC Fixed Maturity Plans-Series VIII, on face value of Rs 10 per unit. The Fund house has decided to offer dividend under retail plan and wholesale plan.

The fund house has decided to distribute 100% of surplus available under its both retail and wholesale plans as on record date. The NAV under retail plan was Rs. 10.2767 per unit and Rs 10.2791 per unit for wholesale plan as on 29 December 2008.

HDFC Fixed Maturity Plan -90D September 2008 (4) is a close-ended income scheme. The investment objective of the scheme is to seek to generate regular income through investments in debt/ money market instruments and government securities.

ING MF declares dividend under FMP

Record date for dividend is 5 January 2009

ING Mutual Fund has announced 5 January 2009 as the record date for declaration of dividend for ING Quarterly Fixed Maturity Plan 91 - Series A3 on face value of Rs 10 per unit. The fund will offer dividend for both retail and institutional plan.

The AMC plans to distribute entire appreciation in the NAV of dividend option from the date of allotment to 05 January 2009 as dividend. The NAV under retail plan and institutional plan was at Rs 10.1831 per unit as on 29 December 2008.

ING Quarterly Fixed Maturity Plan 91 Series A3 is a close -ended debt scheme offering an investment plan of 91 days maturity, investing in a portfolio of government securities or highly rated corporate bonds maturing close to maturity of the scheme so as to generate returns comparable with alternative fixed-income instruments of similar maturity. The scheme will invest in debt securities so as to minimize the impact of price fluctuation of such securities and the value at maturity.

Tata MF declares dividend

Record date for dividend is 5 January 2009

Tata Mutual Fund has announced the declaration of dividend under dividend option for Tata Dynamic Bond Fund - Option A and Option B. The record date is set as 05 January 2009.

For Option A, the AMC decided to distribute up to 100% of the returns generated between, 24 October 2008 to 05 January 2009 as dividend for the face value of Rs 10 per unit.

For Option B, the AMC decided to distribute up to 100% of the returns generated between, 04 December 2008 to 05 January 2009 as dividend for the face value of Rs 10 per unit.

The dividend distribution is subject to availability & adequacy of distributable surplus on record date.

The NAV under Option A was at Rs 11.0719 per unit and under option B was at Rs 10.4406 per unit as on 29 December 2008.

Tata Dynamic Bond Fund is an open-ended debt scheme with an aims to create liquid portfolio of good quality debt as well as money market instruments so as to provide reasonable returns & high liquidity to the unit holders.

Fidelity MF revises load structure

With effect from 1 January 2009

Fidelity Mutual Fund has announced changes in load structure under Fidelity Equity Fund, Fidelity Tax Advantage Fund, Fidelity India Special Situations Fund, Fidelity International Opportunities Fund and Fidelity India Growth Fund, with effect from 1 January 2009.

The fund house has announced that for each purchase application of less than Rs 5 crore, the entry load will be amended to 3% from the existing rate of 2.25% on a prospective basis. In case of SIP/STP registered prior to 1 January 2009, applicable entry load prevalent at the time registration will continue to prevail.

Benchmark MF declares another dividend

Record date for dividend is 5 January 2009

Benchmark Mutual Fund has announced 05 January 2009 as the record date for declaration of dividend under dividend option of Benchmark Equity & Derivatives Opportunities Fund - Dividend Plan for the face value of Rs 10 per unit.

The fund house has declared Rs 0.15 per unit as dividend on the record date 05 January 2009. The scheme recorded NAV at Rs 10.6306 per unit as on 29 December 2008.

Benchmark Equity & Derivatives Opportunities Fund is an open ended equity scheme seeking to provide absolute returns by taking advantage of opportunities in the underlying cash and derivatives markets, and through deployment of surplus cash in fixed income securities.

Kotak MF announces changes in load structure

With effect from 2 January 2009

Kotak Mutual Fund, with effect from 2 January 2009 has announced changes in load structure for Kotak 30, Kotak Tech, Kotak MNC, Kotak Balance, Kotak Global India, Kotak Midacp, Kotak Contra, Kotak Opportunities, Kotak Tax Saver, Kotak Lifestyle and Kotak Equity FOF.

The changes are as follows:

Entry load:

Purchases: 2.25% for investments less than Rs 5 crore and nil for investments greater than equal to Rs 5 crore.

Entry load is nil for switches from equity/balanced/equity FOF scheme to equity/balanced/equity FOF for all type of transactions (for investments less than Rs 5 crore and for investments greater than equal to Rs 5 crore).

Entry load is nil for switches from other close ended schemes (excluding FMP and interval plans) during the predefined liquidity window of the scheme as defined in the respective offer documents or on maturity into equity/balanced/equity FOF scheme for all type of transactions (for investments less than Rs 5 crore and for investments greater than equal to Rs 5 crore).

Entry load is 2.25% investments less than Rs 5 crore and nil for investments greater than equal to Rs 5 crore for switches from any other scheme (other than mentioned in above cases) to equity/balanced/equity FOF scheme.

Exit load:

For redemptions or switch outs in respect of SIP/STP transactions:

For investments less than Rs 5 crore: 2%, if investor exits within 1 year from the allotment of units. 1% for exit on or after 1 year but before 2 years from the allotment of units. Nil for exit on or after 2 years.

For investments greater than equal to Rs 5 crore: nil

For other redemptions or switch outs:

For investments less than Rs 5 crore: 1%, for exit within 1 year from the allotment of units. Nil for exit on or after 1 year from the allotment of units.

For investments greater than equal to Rs 5 crore: nil

For investment by Fund of Funds schemes there will not be any entry and exit loads in the aforesaid equity schemes. There is no exit load applicable to Kotak Tax Saver Scheme.

No entry or exit loads shall be applicable to dividend reinvestments in any schemes of Kotak Mahindra Mutual Fund.

No entry or exit loads shall be applicable for investments by Fund of Funds schemes in open ended debt schemes and Kotak Equity Arbitrage Scheme.

There will no change in the applicable load structure of Kotak Star Kid Facility available under Kotak 30, Kotak Opportunities and Kotak Tax Saver.

Enrty load shall be nil for direct applications received by AMC.

UTI Wealth Builder Fund-Series II changes exit load

For both retail and institutional plan

UTI Mutual Fund has published corrigendum on 30 December 2008 to addendum dated 15 December 2008. It has proposed to change the exit load structure of UTI Wealth Builder Fund - Series II.

Retail Plan

As per the corrigendum, for purchase/ switch-in of units less than Rs 2 crore, the fund will levy exit load of 1.00% if units are redeemed/ switched exited on or before 365 days from the date of acceptance. And in respect of each purchase/ switch-in of units of Rs 2 crore and above in value, an exit load of 0.50% is payable if units are redeemed/ switched out on or before 365 days from the date of acceptance.

Earlier, for investment amount less than Rs 2 crore, 1.00% of an exit load was applicable if exited on or before 365 days from the date of closure of the offer period and for investment amount equal to or greater than Rs 2 crore, 0.50% of an exit load was applicable if exited on or before 365 days from the date of closure of the offer period.

Institutional Plan

As per the revision, for each purchase/ switch in of units of Rs 1 crore and above in value an exit load of 0.50% is payable if units are redeemed/ switched out on or before 180 days from the date of acceptance.

Earlier, the scheme levied 0.50% of exit load if exited on or before 180 days from the date of closure of the offer period.

Global financial crisis rattles market in 2008

The worst financial crisis in over 80 years, sparked by the meltdown of the US sub-prime mortgage market, made 2008 one of the worst ever years for investors.

Stocks fell across the board, accompanied amid a high degree of volatility

The global financial crisis that began last year with the collapse of the US housing market spread around the world, bringing several top financial institutions to their knees and pushing the United States, Japan and Europe into recession or to the brink of it.

There were many instances when market slumped following bad news from the global markets. Then again, there were many sessions when positive global sentiments lifted the market for a short while.

The barometer index lost 10639.68 points or 52.44% in the calendar year 2008 from its close of 20,286.99 on 31 December 2007, on global financial crisis. It is 11559.46 points or 54.50% below its all-time high of 21,206.77 struck on 10 January 2008. Nifty lost 3179.45 points or 51.79% in 2008.

The year 2008 started on a firm note with the economy growing at well above 8% and the Sensex touching a staggering 21,000 points in earlate January. At that time, inflation was the only worry as global crude prices were nearing the $100 mark. The Sensex hit an all time high of 21206.77 on 10 January 2008. On that day, the index had closed at 20582.08.

However, the market underwent a dramatic change after a bearish phase started in late January 2008. The first blow came on 21 January 2008 when the BSE Sensex registered its biggest single-day point fall. The market cracked following a sharp setback in global markets, selling by foreign institutional investors and on margin calls. The 30-share BSE Sensex declined 1,408.35 point or 7.41% to 17,605.35. The broader CNX S&P Nifty declined 496.50 or 8.70% to 5,208.80.

The biggest shock to investors was on 11 February 2008 when India's biggest public offer from Anil Ambani group company Reliance Power slipped on the day of debut.

The issue, which generated demand of Rs 7,50,000 crore, settled at Rs 372.50 on BSE, a discount of 17.22% over IPO price of Rs 450. It debuted at Rs 547.80, a premium of Rs 21.73% from the IPO price.

Volumes in the stock were high. On BSE, 6.38 crore shares changed hands in the counter. Those who had invested in the Reliance Power IPO had incurred a loss of Rs 77.50 per share. Retail investors who had got a discount of Rs 20 per share, had suffered a loss of Rs 57.50 per share.

A panic selling was witnessed in ICICI Bank on rumours that the country's largest private sector lender in terms of market capitalisation was going bust. The scrip, which peaked at over Rs 1400 a share in January 2008, slumped to Rs 282.15 on 27 October 2008.

The bank had even filed a police complaint in Coimbatore and Mumbai on 12 October 2008 against a bear cartel of certain high-profile BSE brokers, who, according to the bank, were actively selling the bank's shares for quite sometime, and may have been responsible for spreading the rumours.

After their record investments in a single year in 2007, FIIs pulled out as much Rs 52987.10 crore till 30 December 2008, as against an inflow of a huge Rs 71486.50 crore in the corresponding period last year.

Just when the year came to an end, a shocking move by Satyam Computer Service raised doubt about country's corporate governance system. Shares of Satyam, India's fourth biggest IT firm by sales, slumped 30.22% on 17 December 2008 after investors chucked the stock following the company's announcement after market hours on 16 December 2008 of a $1.6 billion deal to acquire Maytas Properties and Maytas Infrastructure, companies run by chairman B Ramalinga Raju's sons B Rama Raju and Teja Raju. Satyam scrapped the acquisition of companies connected to its chairman after the plan angered investors.

source: Capital Market

Irda eases investment norms

Insurance companies can invest more in infrastructure, housing sectors

With a view to enhancing the flow of insurance funds to meet the present needs of infrastructure financing and keeping policyholders' interest in view, The Insurance Regulatory and Development Authority (Irda) has decided to partially amend the requirements in so far as it relates to exposure limits applicable to investments in Public limited companies engaged in 'Infrastructure Sector' and 'Housing Sector'. The limits would apply as under with immediate effect.

The exposure of any insurer to an infrastructure company may be increased to not more than 20% as against the present ceiling of 10% as referred in Reg. 5. The limit would be combined for both Debt and Equity taken together without sub ceilings.

This exposure of 20% can be further increased by an additional 5% (i.e. the aggregate exposure to a single investee company being upto 25%) with the prior approval of Board of Directors. Such additional investments shall however be restricted to debt instruments.

Infrastructure activity shall be as defined under Irda (Registration) Regulation, 2000 as amended from time to time.

In the case of Debt investments, the duration of investment shall be not less than 10 years and they should have a minimum rating of AA by a credit rating agency registered under Sebi (Credit Rating Agencies) Regulations, 1999.

In the case of Equity investment, dividend of not less than 4% including bonus should have been declared in at least for the 5 preceding years. However in the case of primary issuance of a wholly owned subsidiary of a corporate/PSU, the track record as mentioned above would be applied to the holding company.

source: Capital Market

Massive selling by FIIs in 2008

Outflow of Rs 52987.10 crore for the year

Foreign institutional investors (FIIs) purchased shares worth a net Rs 124.40 crore on Tuesday, 30 December 2008, as against an outflow of Rs 10.30 crore on Monday, 29 December 2008.

FII inflow of Rs 124.40 crore on 30 December 2008 was a result of gross purchases Rs 882.20 and gross sales Rs 757.80 crore. The BSE Sensex gained 182.64 points or 1.92% at 9716.16 on that day.

FII inflow in December 2008 totaled Rs 1330.70 crore (till 30 December 2008). Foreign funds made heavy sales in calendar year 2008. FII outflow reached Rs 52987.10 crore till 30 December 2008, as against an inflow of a huge Rs 71486.50 crore in the corresponding period last year.

There are a total of 1594 foreign funds registered with the Securities & Exchange Board of India (Sebi).

source: Capital Market

News Flash

India May Allow Duty Free Imports of Raw Sugar to Ease Domestic Shortage India, the world’s biggest consumer of sugar, may allow mills to import the raw sweetener duty free in two weeks to ease a local shortage and prevent an increase in domestic prices before elections next year.

Indian Economy Succumbs to Global Recession After Surviving Terror Attacks India’s economic growth, unscathed by terrorist attacks in Mumbai last month, is slowing as the global recession cuts demand for its exports and cools investment.

Government Bonds Compelte Best Year Since 2001 on Inflation, Rates Outlook India’s 10-year bonds completed their best year since 2001 on speculation cooling inflation will allow the central bank to further cut interest rates.

Rupee Caps Worst Year Since 1991 as Emerging-Market Assets Out of Favor India’s rupee completed its biggest annual drop since 1991, having tumbled this year as a global financial crisis prompted overseas funds to favor safer bets than emerging-market assets.

Sri Lanka Unveils $141 Million Stimulus Package to Boost Economic Growth Sri Lanka unveiled a 16 billion- rupees ($141 million) stimulus package that includes cutting retail fuel prices and removing some taxes to shield the economy from a global recession.

Benchmark Sensitive Index Falls; Reliance Industries, ICICI Lead Declines The Bombay Stock Exchange’s Sensitive Index fell, led by ICICI Bank Ltd. and Reliance Industries Ltd.

Asian Stocks Rise, Paring MSCI Index's Record Annual Drop; BHP, Rio Climb Asian stocks advanced, narrowing the regional benchmark index’s biggest annual drop on record, as metals prices rose and China pledged to promote economic growth.

Sri Lanka's Inflation Rate Declines to 18-Month Low as Fuel Prices Ease Sri Lanka's inflation rate fell to the lowest in 18 months in December as food and transport prices eased, giving the central bank room to cut borrowing costs.

Citigroup Shares Plummeted as Shareholders Suffered `Figurehead' Chairman It was Friday, Nov. 21, and Citigroup Inc.’s shares had plunged 51 percent in four days. Vikram Pandit, chief executive officer of the American banking icon, with 350,000 employees and billions of dollars in souring assets, was on the phone with Federal Reserve and Treasury officials. Executives were huddled in the company’s New York headquarters on Park Avenue.

European, Asian Stocks Rise; MSCI World Index Trims Worst Annual Decline Stocks in Europe and Asia climbed, trimming the MSCI World Index’s biggest annual drop on record, as higher metals prices and China’s pledge to promote economic growth lifted commodity producers. U.S. index futures gained.

Dollar Heads for Biggest Yearly Drop Against Yen Since 1987 on Recession The dollar was set to complete its biggest annual decline against the yen in more than two decades on signs the U.S. economy is sinking deeper into recession.

Credit Suisse to Sell Asset-Management Stake to Aberdeen for $361 Million Credit Suisse Group AG, Switzerland’s second-largest bank, agreed to sell a stake in its Global Investors business to Aberdeen Asset Management Plc for 250 million pounds ($361 million) in stock after losses at the unit.

John Paulson Blasts Hedge Fund Managers Who Restrict Clients' Withdrawals John Paulson, who runs the $36 billion hedge-fund firm Paulson & Co., has some harsh words for his peers and their tendency this year to block or curb clients’ attempts to get their money back.

Gazprom Warns Europe on Natural-Gas Supply, Says Ukraine May Siphon Fuel OAO Gazprom, supplier of a quarter of Europe’s gas, warned customers that Ukraine may interrupt supplies by siphoning fuel from transit pipelines if Russian deliveries to the country are cut, spokesman Sergei Kupriyanov said on state television today.

LyondellBasell Industries Lenders May Lose More Than 90% as Takeover Sours LyondellBasell Industries AF lenders face losses of more than 90 cents on the dollar as the chemicals maker struggles to restructure debt that financed a $12.7 billion takeover a year ago.

Copper Heads for Biggest Drop in 21 Years in London as World Growth Slows Copper headed for its biggest annual drop in more than two decades in London trading. The metal pared its decline today on optimism governments will succeed in reviving economic growth next year.

source: Bloomberg

Are ULIPs really expensive?

A lot of ink has been spilled over how expenses on ULIPs (unit linked insurance plans) pan out over a period of time. Also, more often than not, the expense structure has not been clearly understood by most individuals who have taken a fancy to ULIPs. This article takes a closer look at the break-up of ULIP expenses and how they affect ULIP returns over a period of time.

Simply put, ULIPs work very similar to a mutual fund with a life cover thrown in. They have a mandate to invest the premiums in varying proportions in gsecs (government securities), bonds, the money markets (call money) and equities. The primary difference between conventional savings-based insurance plans like endowment and ULIPs is the investment mandate- while ULIPs can invest upto 100% of the premium in equities, the percentage is much lower (usually not more than 15%) in case of conventional insurance plans. ULIPs are also available in multiple options like 'aggressive' ULIPs (which can invest upto 100% in equities), 'balanced' ULIPs (which invest 40-60% in equities) and 'debt' ULIPs (which invest only in debt and money market instruments).

The exact expense structure/ break-up for ULIPs is as transparent as one would have liked. While the expenses are displayed on companies websites and in sales literature, the onus of dissecting the available information rests on individuals.

Broadly speaking, ULIP expenses are classified into three major categories:

1) Mortality charges

Mortality expenses are charged by life insurance companies for providing a life cover to the individual. The expenses vary with the age, sum assured and sum-at-risk for the individual. There is a direct relation between the mortality expenses and the above mentioned factors. In a ULIP, the sum-at-risk is an important reference point for the insurance company. Put simply, the sum-at-risk is the difference between the sum assured and the investment value the individual's corpus as on a specified date.

2) Sales and administration expenses

Insurance companies incur these expenses for operational purposes on a regular basis. The expenses are recovered from the premiums that individuals pay towards their insurance policies. Agent commissions, sales and marketing expenses and the overhead costs incurred to run the insurance business on a day-to-day basis are examples of such expenses.

3) Fund management charges (FMC)

These charges are levied by the insurance company to meet the expenses incurred on managing the ULIP investments. A portion of ULIP premiums are invested in equities, bonds, gsecs and money market instruments. Managing these investments incurs a fund management charge, similar to what mutual funds incur on their investments. FMCs differ across investment options like aggressive, balanced and debt ULIPs; usually a higher equity option translates into higher FMC.

Apart from the three expense categories mentioned above, individuals may also have to incur certain expenses, which are primarily 'optional' in nature- the expenses will be incurred if certain choices that are made available to individuals are exercised.

a) Switching charges

Individuals are allowed to switch their ULIP options. For example, an individual can switch his fund money from 100% equities to a balanced portfolio, which has say, 60% equities and 40% debt. However, the company may charge him a fee for 'switching'. While most life insurance companies allow a certain number of free switches annually, a switch made over and above this number is charged.

b) Top-up charges

ULIPs allow individuals to invest a top-up amount. Top-up amount is paid in addition to the premium amount for a particular year. Insurance companies deduct a certain percentage from the top-up amount as charges. These charges are usually lower than the regular charges that are deducted from the annual premium.

c) Cancellation charges

Life insurance companies levy cancellation charges if individuals decide to surrender their policies (usually) before three years. These charges are levied as a percentage of the fund value on a particular date.

Having defined ULIP expenses, an illustration will help in understanding how they pan out as well as their impact on returns over a period of time.

ULIP expenses table

Tenure (Yrs)	Yearly premium (Rs)	Expenses (%)				Fund value (Rs)	Effective rate of return (%)**
		Initial 2 yrs (pa)	Remaining tenure (pa)	Annual administration expenses* (Rs)	Annual fund management charges (%)
10	25,000	27.00	3.00	180.00	1.00	358,417	6.48
15						703,694	7.53
20						1,232,827	7.98
25						2,042,497	8.22
30						3,281,631	8.36

pa: per annum
* Subject to inflation @ 5% pa.
** CAGR

Suppose an individual aged 30 years, wants to buy an 'aggressive' ULIP for a sum assured of Rs 500,000 for a 30-Yr tenure. The premium he pays for the same is Rs 25,000. The expenses for the initial 2 years is assumed to be 27% while for the remaining tenure, it is 3%. Fund management charges are assumed to be 1% p.a. of the corpus for the entire tenure. We have also assumed that the individual stays aggressive throughout the tenure and does not shift his money between the various fund options.

We have assumed that the investments appreciate at 10% compounded annualised growth rate (CAGR). So the fund value at the end of 10 years is Rs 358,417 and the effective CAGR net of expenses is approximately 6.48%. However, it can be seen that as the years roll by, the CAGR keeps going up with a corresponding increase in the fund value. For example, the fund value at the end of the 20th year is Rs 1,232,827 while the CAGR has gone up to approximately 7.98%. At the end of the 30th year, the CAGR has gone up to 8.36%.

The reason why the CAGR goes up over a period of time is because the ULIP expenses even out over a period of time. The 'evening out' occurs because although the expenses are high in the initial years, they fall thereafter. And as the years roll by, the expenses tend to 'spread themselves' more evenly over the tenure of the ULIP. Another reason is also because the expenses are levied on the annual premium amount, which stays the same throughout the tenure. Therefore, the expenses do not have any impact on the returns generated by the corpus.

Fund management charges also have an effect on the returns. FMC is levied on the corpus, which keeps fluctuating over the tenure. Therefore over a period of time, the lower the FMC, the higher the amount available for investments and in turn, the better will be the ULIP fund returns.

Of course, the returns shown in the illustration above will differ with a change in the sum assured, the annual premium amount, the percentage of expenses, the FMC and so on. The returns will also depend to a large extent on how well the insurance company has managed your money. Individuals therefore, need to bear in mind that expenses are an important variable while evaluating ULIPs across life insurance companies. They have the potential to make a considerable difference to the returns generated over a period of time.

source: personalfn

Medical insurance demystified!

In recent times, there has been growing awareness about life insurance products and the various benefits they offer to individuals. Offerings like unit linked insurance plans (ULIPs) have done their bit to draw individuals towards the insurance segment. Also tax benefits (presently under Section 80C of the Income Tax Act) have contributed to their allure and helped in popularizing insurance products.

Conversely there are products like medical insurance (or mediclaim as it is commonly referred to), which can add value to an individual's insurance portfolio, but are relatively lesser known. In this note, we discuss what medical insurance is all about and the various benefits it offers to individuals.

What is medical insurance?

Medical insurance provides for reimbursement of hospitalization expenses for illnesses/diseases suffered or accidental injuries sustained during the policy period. In other words, subject to the insurance cover and the terms and conditions of the policy, the insurance company undertakes to compensate the policy holder for hospitalization expenses that he incurs, during the policy's term.

To avail of the insurance cover, the policy holder is required to pay a premium. The premium amount depends on factors like the policy holder's age and health. The premium amount rises in line with an increase in the insured person's age, among other factors. In case of an existing policy, wherein an insurance claim has not been made, the insurance company compensates the policy holders by offering a higher insurance cover (at the same premium) or by lowering the premium for the subsequent years.

Premium amount

The table below provides an indicative list of the premiums from a leading insurance company for its medical insurance policy for a cover of Rs100,000.

Age (Years)	Indicative Annual Premiums (Rs)
25 - 35	1,470.34
36 - 45	1,599.42
46 - 55	2,288.57
56 - 65	2,606.21
66 - 70	2,916.00
71 - 75	3,124.76
76 - 80	3,866.67

(Inclusive of Service Tax charged at 12.5% and Education Cess charged at 2.0%)

Added benefits

Insurance companies are known to offer discounts in premiums when members of a family opt for medical insurance together vis-a-vis applying for insurance in their individual capacities. Generally, most policies cover upto 30 days of pre-hospitalization and upto 60 days of post-hospitalization expenses; however an additional cost might have to be borne for the same.

Most insurers also provide the facility of cashless hospitalization by tying up with third party administrators (TPAs). In other words, policy holders can avail of medical treatment without incurring any expenses during hospitalization. Conversely, they would be required to undergo medical treatment at their expense and subsequently file a claim with the insurance company.

Tax benefits

Medical insurance premium paid is eligible for a deduction from gross total income under Section 80D of the Income Tax Act. At present, the eligible amount is Rs 15,000; in case of senior citizens, the same is Rs 20,000. The premium payment has to be made by cheque, to keep in force or effect the medical insurance.

Merits of taking medical insurance at a young age

It is best to take medical insurance at a younger age, when the insurance seeker does not suffer from any ailments or sicknesses. This is important because as one ages, there is a greater likelihood of developing ailments. Existing ailments are not covered at the time of opting for medical insurance. Hence it would be prudent to opt for the insurance cover at an early age. Furthermore, taking a policy earlier can also save the trouble of undergoing a medical check up.

Also given that insurance companies have increasingly started giving senior citizens a cold shoulder (which is ironical given that most individuals need hospitalization/medical treatment at that age), it makes sense to start early.

Kotak Mahindra MF ties up with Central Bank of India

Bank will offer the entire bouquet of fund's products

Kotak Mahindra Asset Management Company entered into a distribution tie-up with Central Bank of India. Under the agreement Central Bank of India will offer the entire bouquet of Kotak Mutual Fund products from the bank's branches. Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra AMC and G.P. Chitnis, General Manager, Central Bank of India signed the Memorandum Of Understanding.

Kotak Mahindra Asset Management Company said, “The banking channel is one of the best platforms to reach out to retail investors. Offering advice on mutual fund investments is an extension of the value added services that are offered by banks. As experts in the field of wealth creation in India, our tie up with Central Bank of India will reinforce our commitment to expand retail participation. With this tie-up, customers will gain easy access to the various schemes of Kotak Mahindra AMC at the branches where they do their banking transactions.”

G.P. Chitnis, General Manager, Central Bank of India, said “Central Bank of India was established in 1911 by Sir Sorabjee Pochkhanawala as a first Swadeshi Bank of the country. Over the past 98 years it has spread throughout the country and has established itself as a most popular Brand name. Bank's present Business is about Rs.1.97 lakh crore and it will cross Rs.2 lakh crore shortly''.

Mr. Chitnis added "In the Indian financial markets, Mutual Funds have established themselves and gained popularity amongst the retail investors. For us, this tie up will open up further opportunities to provide our vast client base with a wider choice of products to meet their diverse financial needs. It will also give a boost to Bank's fee-based income. The Bank will distribute all the products of Kotak Mahindra AMC through its selected Branches''.

UTI MF declares dividend under Short Term FMP

Record date for dividend is 05 January 2009

UTI Mutual Fund has announced dividend under dividend option of UTI Short Term Fixed Maturity Plan-Series I-X (90 days). The record date for the declaration of dividend is 05 January 2009. The dividend will be offered for both retail and institutional plan.

The quantum of dividend will be 100% of distributable surplus available on the record date on face value of Rs. 10 per unit. The NAV of retail was at Rs 10.2567 per unit and institutional plan was at Rs 10.2599 per unit on 26 December 2008.

UTI Short Term Fixed Maturity Plan-Series I-X is a close-ended income scheme with an investment objective to generate regular income by investment in a portfolio of fixed income securities normally maturing in line with the time profile of the plan.

SBI MF revises exit load structure of two schemes

Changes will be effective from 1 January 2009

SBI Mutual Fund has revised the exit load structure for Magnum Income Fund, SBI Short Horizon Fund-Short Term Fund. The changes are to be applicable for growth, dividend, and bonus plan of Magnum Income Fund and retail plan of SBI Short Horizon Fund-Short Term Fund with effect from 1 January 2009.

Magnum Income Fund

As per the revision, for investments up to and including Rs 1 crore, for exit within 6 months from the date of investment 1.00% will be the exit load and 0.50% exit load for exit after 6 months but before 12 months from the date of investments. For redemption done after 12 months, no exit load will be charged with effect from 1 January 2009.

For investment amount above Rs 1 crore, exit load will be nil.

Presently, for investments up to Rs 50 lakh, 0.50% is exit load for redemption within 6 months from the date of investments and nil for investments above Rs 50 lakh.

SBI Short Horizon Fund-Short Term Fund

Accordingly, the SBI Short Term Horizon Fund-Short Term Fund will ask load of 0.50% of applicable NAV if the investment is redeemed within 3 months from the date of investment while 0.25% for exit done after 3 months but before 6 months from the date of investment. If investments get redeemed after 6 months, no exit load will be applicable.

Existing exit load is 0.50% if the investment is redeemed within 6 months from the date of allotment.

News Flash

Stocks in India Climb for Second Day; ICICI, Reliance Communications Lead India's benchmark stock index gained for a second day to the highest in a week, on optimism any government measure to lower fuel prices and unveil a stimulus package will boost a slowing economy.

JSW Steel Says Profit Margins Will Shrink as Prices Slump, Demand Declines JSW Steel Ltd., India’s third-largest producer, said profit margins will shrink in the financial third quarter as the global recession cuts demand and prices.

Satyam Computer Chairman Raju Writes to Employees After Directors Resign Satyam Computer Services Ltd.’s Chairman Ramalinga Raju wrote to the company’s employees as the software provider struggles to regain investor confidence after four directors quit following a botched acquisition.

Reliance Communications Starts Offering Nationwide GSM Wireless Services Reliance Communications Ltd., India’s second-largest mobile-phone company, started nationwide wireless services based on the global system for mobile communications, or GSM, to gain customers.

Indian Orders Help China's Power-Plant Builders Grow Abroad as Home Slows China won contracts to design coal- fired power plants in India, Asia's third-biggest economy, as slowing domestic orders prompt companies to expand overseas.

Bond Yields at Lowest Since June 2004 on Speculation India Will Cut Rates India’s 10-year bonds gained for a second day, pushing yields to the lowest since June 2004, on speculation easing inflation will allow the central bank to further cut interest rates.

Most Asian Stocks Rise, Led by Energy Shares on Oil; BHP Billiton Advances Most Asian stocks rose, as energy companies’ gains on higher oil prices offset concerns that increased fuel costs will drag on corporate earnings.

Rupee Weakens on Speculation Importers Buying Dollars, Funds Cut Holdings India’s rupee weakened on speculation some refiners bought dollars to settle month-end import bills as conflict in the Gaza Strip escalates.

source: Bloomberg

The Eighth Wonder - Power of Compounding

Sachin Tendulkar started playing cricket at the age of 16. At 29, he has already amassed over 12,000 runs in one-day matches. On the other hand, Robin Singh joined the Indian team at the age of 25 and has retired now. He could manage only 2,336 runs in one-day matches. Before you begin to wonder if we have lost our marbles, let us tell you what we are trying to arrive at here. The idea is simple: the earlier you start investing, the more likely it is that you would end up making more money. While runs scored in cricket don't multiply automatically, investment does. Surprised? Well, the fundamental principle of compounding helps you realize this.

Let's see how the concept of compounding works. Suppose Sachin started investing Rs 2,000 per year at the age of 19 and when he reaches 27, he stops investing and locks all his investments till retirement. Robin, however, doesn't make any investment till he is 27. At 27, he starts investing Rs 2,000 a year till the age of 58. The adjacent table tells you how their investments would turn out when they both are 58, assuming that the growth rate is 8 per cent per annum. The results are eye-popping (see Compounding: A Tale of Two Investors).

What is compounding? Benjamin Franklin once wrote somewhere: '''tis the stone that will turn all your lead into gold Remember that money is of a prolific, generating nature. Money can beget money, and its offspring can beget more.'' Compounding is a simple, but a very powerful concept. Why powerful? Because compounding is similar to a multiplier effect since the interest that is earned by the initial capital also earns an interest, the value of the investment grows at a geometric (always increasing) rate rather than an arithmetic (straight-line) rate (see How Compounding Works). The higher the rate of return, the steeper the curve.

For example, at an annual interest rate of 8 per cent, a Rs 1,000-investment every year will grow to Rs 50,000 in 20 years. While at a 10 per cent rate of interest, the same investment will fetch you Rs 63,000 in 20 years. So, it is quite clear that a 2 per cent difference in the interest rate can make you richer or poorer by Rs 13,000. And, by staying invested for a longer period, your capital will earn more money for you.

Basically, compounding is a long-term investment strategy. For example, when you own a mutual fund, compounding allows you to earn interest on your principal. Compounding also occurs when you re-invest your earnings. In the case of mutual funds, this means re-investing your interest or dividend, and receiving additional units. By doing such a thing, you are earning a return on your returns and the principal. When the principal is combined with the re-invested income, your investment will grow at an increased rate.

The best way to take advantage of compounding is to start saving and investing wisely as early as possible. The earlier you start investing, the greater will be the power of compounding.

Is Low NAV Cheap?

Is a fund with a low NAV a better investment option than a fund with a higher NAV? Since you can buy more units when the NAV is low, isn't it cheaper? Should mutual fund schemes with a higher NAV be avoided? These are questions, which trouble many first time investors in mutual funds.

The answer to these questions is that - it is irrelevant how high or low the NAV of a fund is. The amount of your investment remaining unchanged, between two funds with identical portfolios, a low NAV would mean a higher number of units held and consequently a high NAV would mean lower number of units held.

But under both circumstances the product of the number of units and the applicable NAV, which is the value of your investment, would be identical. Thus it is the stocks in a portfolio that determine returns from a fund, the value of the NAV being immaterial.

When one sells those units, the return will be the same as that of another scheme, which has performed similarly. The 'cost' of a scheme in terms of its NAV has nothing to do with returns. What you want to buy in a scheme is its performance. The only instance where a higher NAV may adversely affect you is where a dividend has to be received. This happens because a scheme with a higher NAV will result in a fewer number of units and as dividends are paid out on face value, higher NAV will result in lower absolute dividends due to the smaller number of units. But even here, total returns will remain the same.

So from whichever angle you see it, the NAV makes no difference to returns. Mutual fund schemes have to be judged on their performance. And the simplest way to do this is to compare returns over similar periods.

source- Valueresearch

India gold up over 2.5 pct on overseas leads, rupee

MUMBAI (Reuters) - India's gold futures rose by more than 2.5 percent on Monday following strong international markets and a weaker rupee making the dollar-quoted yellow metal expensive, analysts said.

Overseas gold rose more than 2 percent on Monday to its strongest since early October after violence between Israel and Hamas pushed up oil prices on fears of supply disruptions, and spurred safe-haven buying in bullion.

Gold is expected to remain bullish for the day and one should buy on dips, said Gnanasekar Thiagarajan, director at Commtrendz Research.

Buying was recommended at 13,350 rupees with a target of 13,675-13,700, and with a stop loss of 13,290 rupees, Thiagarajan added.

The Indian rupee weakened on Monday as early losses in the domestic equity market fueled concerns about capital outflows, but broad dollar weakness may help avert a sharp slide in the currency.

Open interest for Feb gold on MCX was at 16,909 lots, up from 16,310 a day earlier. Volume on Saturday was 3.62 kgs.

source: Reuters

Birla Sun Life MF declares dividend

Record date is 2 January 2009

Birla Sun Life Mutual Fund has declared dividend under dividend option of Birla Sun Life Fixed Maturity Plan –Annual Series 3. The record date for declaration of dividend is 2 January 2009.

The fund house has decided to distribute a dividend of 100% of distributable surplus as on the record date for the face value Rs 10 per unit. The NAV of the scheme as on 24 December 2008 was recorded at Rs 10.0604 per unit.

Birla Sun Life Fixed Maturity Plan –Annual Series 3 is an open-ended income scheme with the investment objective of generating regular income through investments in debt and money market instruments.

Reliance MF declares dividend for its interval fund

Record date for dividend is 2 January 2009

Reliance Mutual Fund has declared dividend under dividend option of Reliance Interval Fund – Quarterly Interval Fund -Series I. The record date for the dividend is 2 January 2009.

The Fund house has decided to offer dividend on the face value of Rs 10 per unit for both plans viz. retail and institutional plans. The quantum of dividend will be 100% of distributable surplus as on the record date.

The NAV for the Reliance Interval Fund – Quarterly Interval Fund -Series II under retail plan was Rs 10.2462 per unit and under Institutional plan was Rs 10.2534 per unit as on 24 December 2008.

Canara Robeco MF declares dividend for two schemes

Record date for dividend is 2 January 2009

Canara Robeco Mutual Fund has announced 2 January 2009 as the record date for declaration of dividend under dividend option of Canara Robeco Income Fund and Canara Robeco Gilt Fund.

The rate of dividend will be 7.50% (Re 0.75 per unit) for both Canara Robeco Income Fund and Canara Robeco Gilt Fund.

The NAV of the dividend payout option of Canara Robeco Income Fund was Rs 16.3285 & of bonus option under Canara Robeco Income Fund was at Rs 16.5410 as on 26 December 2008.

The NAV of dividend payout of Canara Robeco Gilt Fund was recorded at Rs 13.9716 as on 26 December 2008.

Tata MF files another offer document with Sebi

Plans to launch open ended equity scheme

Name of Fund: Tata Value Opportunities Fund

Type of Scheme: It is an open ended equity scheme

Investment Objective: The investment objective of the Scheme will be to provide reasonable and regular income and/or possible capital appreciation to its Unitholder by predominantly investing in equity and equity related instruments available at the price which is termed as value investment opportunity

Investment Options: The Schemes will offer two plans i.e. growth and dividend option. Dividend option will further offer dividend payout and dividend reinvestment options.

Asset Allocation: Under normal circumstances the scheme will invests upto 65%-100% in the equity and equity related instruments out of which 65% -100% will be invested in equity and equity related instruments termed as value investment opportunity and upto 35% in other equity and equity related instruments. The scheme will invest upto 35% in the debt and money market instruments with medium to high risk profile.

Value investing is arguably the most conservative approach towards stock picking. The approach in its simplest form advocates that investors should exploit the difference in price between the stock market value of the company and the actual or intrinsic value of the business. In this style the focus remains on the price of the stock and inherent in this approach is the assumption that the market often does not value a company properly.

Investment in securitised debt will not normally exceed 20% of the net assets of the scheme.

NFO price: Rs 10 per unit

Entry Load: For each investment amount of less than Rs 2 crore the scheme will charge 2.25% of entry load and will not charge any entry load for each investment amount of greater than or equal to Rs 2 crore.

Exit Load: The scheme will charge 1.00% of exit load for each investment amount of less than Rs 2 crore and if redeemed before expiry of six months from the date of allotment and will charge any exit load for each investment amount of greater than or equal to Rs 2 crore.

Minimum Investment Amount: The minimum investment amount is Rs 10,000 and in multiples of Re 1 thereafter.

Minimum Targeted amount: The Fund seeks to collect a minimum subscription amount of Rs 2 lakh under each series during NFO.

Benchmark Index: BSE Sensex

Fund Manager: Venugopal will manage the equity part of the fund and Raju Sharma will manage the debt part of the fund.

News Flash

Satyam Computer Directors Resign as Investor Criticism of Founders Mounts Satyam Computer Services Ltd. said three more directors quit as the Indian software company reels from an aborted $1.6 billion acquisition that prompted a record stock slump and criticism from its biggest outside shareholder.

Sensitive Index Rises for First Day in Five; Satyam Computer, Ranbaxy Gain India’s key stock index rose for the first time in five days, paced by Satyam Computer Services Ltd. after the company said it will review “strategic” options and the board’s composition.

Hyundai Motor Cuts Production Shift in India to Cope With Slowing Demand Hyundai Motor Co., South Korea's largest automaker, began cutting shifts in India as it slashes output to cope with plunging demand.

Rupee Gains After Stock Index Reverses Drop, Dollar Weakens Versus Majors India’s rupee rose after the benchmark stock index reversed a decline, spurring speculation overseas investors will cut back sales of local equities.

Government Bond Yields Near 4 1/2-Year Low as Cost of Overnight Loans Drop India’s 10-year bonds gained, pushing yields near the lowest since June 2004, as a drop in the cost of overnight loans made debt purchases cheaper.

Biggest Bond Investors Look for European Rally in 2009 as ECB Follows Fed The world’s biggest bond investors are betting European Central Bank President Jean-Claude Trichet will be forced to follow Federal Reserve Chairman Ben S. Bernanke and step up the pace of interest-rate cuts.

source: Bloomberg

NCDEX to launch global contracts in gold and silver

The National Commodity & Derivatives Exchange Limited (NCDEX) is all to launch Gold & Silver International futures contracts on the exchange on Monday, December 29, 2008.

A press statement issued from NCDEX said that these contracts named Gold International and Silver International can be bought and sold in lots of one kg and 30 kg respectively.

The contract size has been defined keeping in view the Indian consumer and the recent price trends. These contracts will be physically settled at Ahmedabad. Contracts would be settled on the basis of international prices in rupee denomination.

Advantages of the contract

· Contracts expire on the last trading day of the month prior to expiry of the corresponding international bullion futures contract

· Settlement on expiry at Import parity costing

· Real time & transparent International price hedging contracts in

Rupees for Importers and Traders

· Delivery logic is based on Intention matching

With the introduction of futures market in India, NCDEX had started offering contracts in Gold and Silver. It currently offers futures trading in 1 Kg gold & 30 Kg Silver contracts. These contracts are available for trading during all 12 months of the year and are settled by compulsory delivery mechanism.

On account of persistent market demand and keeping in mind the fact that India is a big importer of bullion, NCDEX has now introduced these new contracts, the statement said.

Source: Commodity Online