Category: Investment

Common Account Number (CAN) for mutual funds

Common Account Number (CAN) for mutual funds

The Mutual Fund Utility (MFU) provides a common platform for investors to transact across different mutual funds using a common account number (CAN). The investor is allotted a CAN as a single reference for all investments. The investor gets the benefit of a single view of all MF investments, single payment for multiple transactions, centralized complaint redressal and single point communication in case of changes in details.

Form

In order to get a CAN allotted, an investor needs to submit a duly filled CAN Registration Form at any of the nearest points of service (POS) of MF Utilities India Pvt Ltd (MFUI) or a distributor signed-up with the MFUI or a participating AMC branch. CAN forms can also be downloaded from the MFU website.

Documents

Following documents needed with the application form:
1. PAN proof
2. Proof of KYC,
3. Proof of Date of Birth
4. Proof of Bank Account for bank mandates registered under the CAN
5. Proof of depository account
6. Proof of guardian relationship (in case of minor applicants)

Existing investments

The existing investments of investors are not migrated by MFU. However, upon creation of a CAN, MFU will map the existing folios of the investor/s across mutual funds to the CAN, based on the PAN, holding pattern and other parameters.

Modes of holding

In case of joint holdings, a separate CAN is created for different combinations of investor holdings. CAN is provided for a combination comprising different number of investors 1, 2 or 3, order of holding, mode of holding (single, joint, anyone or survivor)and tax status.

Points to note

KYC compliance is compulsory for CAN creation.

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Senior Citizens Savings Scheme SCSS

Senior Citizens Savings Scheme SCSS

  • SCSS is for senior citizens who are 60 years or above on the date of opening of the account. Also people with 55 years of age who have retired by VRS can open SCSS within one month of receiving the retirement benefits.
  • Minimum Investment: Rs. 1,000
    Maximum Investment: Rs. 15 Lakhs
  • The joint account can be opened only with your spouse. There is no age limit applicable for the joint account holder.
  • The interest is paid out quarterly. The interest is 8.3% w.e.f July 1, 2017
  • No partial withdrawal is permitted before 5 years. The account may be extended for a further period of 3 Years

Advantages

  • The interest is paid quarterly to the saving account, hence can serve as regular income for retired
  • Redemption on maturity comes directly to your bank account or through post-dated cheques
  • The SCSS carries a sovereign guarantee for principal and interest payments. So it’s the safest investment

Disadvantages

  • The interest from SCSS is taxable
  • Bank would deduct TDS if the total interest in a year is over Rs 10,000
  • NRIs and HUF are not eligible to open an account

Tips

  • You can open SCSS with Post offices, or nationalized bank
  • SCSS account can be closed after 1 Year (with penalty)
  • If your income is not taxable, you can provide form 15H or 15G so that banks don’t cut TDS
  • Any retired Defence Services personnel is eligible for SCSS irrespective of his age
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Benefits of Investing in Mutual Funds

Benefits of Investing in Mutual Funds

Benefits of Investing in Mutual Funds

What are Mutual Funds?

A Mutual Fund is a company that brings together a group of people and invests on their behalf.

“Mutual Funds were created to make investing easy, so consumers wouldn’t have to be burdened with picking individual stocks”

Scott Cook

Why Mutual Fund?

  • Diversification – ‘Don’t put all your eggs in one basket’ concept
  • Professional Management – Qualified professionals with research teams manage your funds
  • Transparency – Sharing account statements, factsheets and declaring NAVs daily
  • Regulation – Funds follow strict regulations to protect investors
  • Rupee Cost Averaging – Your money buys more units when markets are high and vice-versa
  • Liquidity – Redeem your investments with convenient payout options

Fayde Ka Funda

Invest in Mutual Funds and let the professionals handle your money.

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EPF (Employee Provident Fund)

EPF (Employee Provident Fund)

  • EPF is mandatory for salaried employees working for companies with more than 20 employees
  • Under EPF rules, you need to contribute 12% of your Basic pay + DA to EPF
  • The employer matches this EPF contribution
  • You have option to put up to 100% of Basic pay + DA to EPF. This is known as Voluntary Provident Fund (VPF). The employer generally does not match your VPF contribution
  • Interest rate : 8.55% (FY 2017-18)

Advantages

  • The interest earned on EPF/VPF is Tax Free
  • Can take loan against EPF and also do partial withdrawal under certain conditions
  • Convenient to invest as the amount is directly deducted from salary

Disadvantages

  • Money is locked till your retirement
  • The EPF interest rates are market linked and set by EPFO every year
  • The withdrawal of EPF takes time

Tips

  • You can opt for VPF by giving a request to your company at the start of every financial year
  • Only your contribution in EPF and VPF is considered for Tax Deduction
  • If you withdraw your EPF before 5 years the amount is taxable and also the earlier tax deduction claimed is nulled
  • In case you change your job, you can transfer the previous EPF to your current employer
  • Website http://www.epfindia.com
  • To check EPF balance http://epfoservices.in/epfo/member_balance/member_balance_office_select.php
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Asset Allocation in Mutual Funds

Asset Allocation in Mutual Funds

1. What is asset allocation all about?

Asset allocation is the process of deciding how to divide your investment across various asset categories, such as equity mutual funds, debt mutual funds and cash, which are the most common components of an asset allocation strategy.

The objective of asset allocation is to minimise volatility and maximise returns. The process involves dividing your money among asset categories that do not all respond to the same market forces in the same way at the same time.

Asset allocation varies from one investor to another. It is determined based on your age, lifestyle, goals and risk-taking appetite. For example, a conservative investor will be told to hold 50% in equity mutual funds, 45 per cent in debt mutual funds and 5 per cent in gold funds.

2. How does asset allocation work?

Before embarking on your financial journey or investing in any financial product, typically a financial planner or wealth manager suggests an asset allocation based on his assessment of an investors profile.

For example, an investor holding a Rs 1-crore portfolio could have 50 per cent allocation to equity mutual funds, 45 per cent to debt mutual funds and 5 per cent to gold funds. This is supposed to be monitored on a regular basis.

So after a year, if due to a rise in the stock markets, equity mutual fund allocation rises to 60 per cent, it should be brought back to its original level of 50 per cent. This is necessary to avoid a higher loss to the portfolio if equities fall due to some reason. Wealth managers say sticking to an asset allocation plan is crucial to achieving your financial goals.

This approach reduces risk on the portfolio too. When the equity component goes up, the investor can bring back his allocation by switching some units back to debt funds.

Similarly when allocation falls due to a fall in the market, he can increase it to his original allocation by switching from debt funds to equity funds.

3. Why should one follow an asset allocation?

It is difficult to predict which asset class will go up when or to time the markets. For example, equities may be up while gold may be down, and vice-versa. However, if you have your wealth spread across assets, you will be less hit and get the best risk adjusted returns. Wealth managers believe in the long term, 90 per cent returns come from proper asset allocation.

4. How often should one review asset allocation?

Investors should review it at least once a quarter. If any asset class moves up or down by more than 10 per cent of their targeted allocation, they could look at rebalancing their portfolio.

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Build a emergency fund through a liquid fund

Build a emergency fund through a liquid fund

Where should you keep your emergency funds?

Most of us have heard the old proverb about saving for a rainy day. So, how much money should be saved as contingency fund? Depending on the current income and obligations, one might need to keep in anywhere from three months’ to two years’ worth of expenses. Have you ever thought of getting reasonable returns without compromising too much on how quickly we could get our hands on the cash? Financial planners recommend that investors must build a contingency fund (typically 3-6 months of their expenses) through a liquid fund. In recent times, the liquid fund space has been witnessing some action due to excess funds remaining idle in their savings accounts post demonetization drive. Liquid funds are an attractive alternative to retail investors for parking funds lying idle in their savings bank accounts.

What is a liquid fund?

Liquid funds are an open-ended debt mutual fund schemes which invest the corpus into short term money market instruments like short term corporate papers, treasury bills and certificates of deposit with short maturity period (residual maturity not exceeding 91 days).

Key features of liquid fund

  • High level liquidity and nominal risk
  • No entry and exit loads
  • Different investment options like growth and daily, weekly, or monthly dividend
  • Tax efficient

When can you invest in Liquid Funds?

Emergency situation such as loss of job, markets crashing, medical emergency or any unfortunate event that come with an economic loss for some time. Sudden business expenditure or to address unforeseen circumstances or losses in a business

Taxation

Liquid funds are treated like other debt funds for taxation purpose. If you hold the fund for less than 3 years, then it is considered as Short Term Capital Gain (STCG). However, if you are holding for more than 3 years, then it is considered as Long Term Capital Gain (LTCG).

  • Short Term Capital Gain Tax for Debt Funds – It will be taxed as per your tax slab.
  • Long Term Capital Gain Tax for Debt Funds – It will be taxed at 20% with indexation benefit.

The tax treatment also differs with the growth and dividend plans that you opt for. Dividends received under liquid plans are not taxed at the hands of investors but fund houses pay dividend distribution tax.

Risk factor

Liquid funds come with some degree of risk, but if one invests in funds with good paper, the risk is minimal. Most liquid funds have a relatively low level of risk because of the lower maturity period.

Conclusion

Liquid funds extend the advantage of risk adjusted returns along with basic principles of accessibility and safety while maintaining a healthy contingency fund. Hence, it may be considered wise to park your surplus funds into liquid mutual funds and start an SIP to build a contingency fund.

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PPF (Public Provident Fund)

PPF (Public Provident Fund)

  • PPF can be opened at Post Offices or Nationalized Banks.
  • Has mandatory locking of 15 Years and can be extended further 5 years at a time
  • Maximum Investment Allowed: Rs 1.5 Lakh per Year (Budget 2014 increased this limit )
  • Minimum Investment of Rs 500 required every year to keep the account active
  • Interest Rates paid on PPF are market linked onward hence would vary every quarter The interest rate is 7.6% w.e.f 1.1.2018

Advantages

  • The interest earned on PPF is Tax Free
  • After opening the PPF account, investment can be done online every Year
  • Can take loan against PPF and also do partial withdrawal
  • It cannot be attached by court orders
  • Highest Safety – backed by Govt.

Disadvantages

  • Longer Locking period
  • The PPF interest rates are market linked and hence would change every year
  • HUFs and NRIs cannot open PPF Account

Tips

  • Investment done till 5th of the month earns interest for the month. So deposit your money before 5th of month
  • PPF can be opened on minors name with either parents as guardian
  • The total investment in your PPF and the minor child PPF account (for whom you are guardian) should not exceed Rs 1.5 lakh in a financial year
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Emergency fund

Emergency fund

Do you have an emergency fund?

An often neglected financial goals among people is building an emergency (contingency) fund. It’s a must have for every individual because one never knows when there could be a need for some extra money due to some unforeseen event. To build an emergency corpus, you should invest in those instruments which you can redeem or liquidate within a very short notice. Putting some money in a bank fixed deposit is one of the solutions. Investing in a liquid fund or an ultra-short term fund of a good fund house can also serve the same purpose.

WHEN TO USE A CONTINGENCY FUND

  1. An emergency fund is needed when one’s regular source of income dries up and yet there’s a need for some funds to meet the daily expenses
  2. It could also be used to meet some medical emergency
  3. On could use it to tide over some months in case of a job loss or some setback in business
  4. In such situations one should be able to tap into a corpus without curtailing regular investments
  5. Usually regular investments are for meeting long term financial goals like child’s education, own retirement etc.
  6. The optimum size of an emergency fund should equal the monthly expenses of three-six months
  7. Liquid funds have the advantage over other comparable investments in terms of lower taxes and any-time withdrawal without penalty
  8. Returns from these funds are hardly affected by short term interest rate volatility
  9. Instant withdrawal, up to certain limits, is also be possible from these funds

DO’s and Dont’s

  • Never keep money in an equity fund to build an emergency fund
  • For an aged person without a medical insurance, the contingency fund should be a large one
  • For a young person with regular salary income and a mediclaim, it should be used to meet daily expenses if cash flow stream is disturbed

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Online contributions to NPS account

Online contributions to NPS account

The National Pension System (NPS) allows its subscribers to open NPS Tier I and Tier II accounts online through the e-NPS. Subscribers who have not opened accounts online can make contributions to NPS online, using the e-NPS portal, with the following steps.

Portal

To make an online contribution, the NPS subscriber is required to go to the e-NPS website https://enps.nsdl.com/ and click on the ‘Contribution’ tab.

Authentication

Once the link is accessed, a form will be displayed wherein your PRAN (Permanent Retirement Account Number) and date of birth are to be entered. After the information is submitted, the PRAN will be verified. Upon successful verification, an OTP will be sent to your registered mobile number.

Payment

The OTP must be entered to authenticate the PRAN. Once this is done, you will be able to access the page for making online contributions to your NPS account. The payment can be made for the Tier I or Tier II account through your debit or credit card or by using the Internet banking option.

Charges

A POP service charge of 0.05% of the contribution amount will be applicable (subject to a minimum of Rs 5 and maximum of Rs 5,000). If you have registered in e-NPS through your Aadhaar, no charges will be applicable for future contributions.

Points to note

– There are no limits or restrictions to making contributions to your NPS using the e-NPS platform.
– It is important to have an active Tier I or Tier II account in order to make an online contribution.
– NPS Lite or Atal Pension Yojana subscribers cannot avail of the facility of making contributions through e-NPS.

Tier I is the mandatory account for long-term savings. Invest in Tier I account to avail exclusive Tax benefit upto Rs.50,000 u/s 80CCD(1B).
Tier II is an add-on account which provides you the flexibility to invest and withdraw from various schemes available in NPS without any exit load.

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What is a Fixed Deposit?

What is a Fixed Deposit?

An investment of a certain amount of money with a bank or a non-banking institution such as a Housing Finance Company for a fixed period of time, at a fixed rate of interest.

What is the minimum and maximum tenure of a Fixed Deposit?

You can open a Fixed Deposit for a minimum tenure of 7 days and a maximum tenure of 10 years

Are Fixed Deposits taxable?

The interest that you receive on your Fixed Deposit is taxable. You can submit Form 15G to your bank.

How do I receive the interest amount?

Pay-out : The interest amount is credited to your bank account on monthly or quarterly basis.
Compounding: A compounded interest is added to the principal amount of the fixed Deposit every quarter and is reinvested.

Are there any tax benefits?

Banks also offer tax-saving Fixed Deposits that have a lock-in period of 5 years. You can claim tax deductions under section 80c of Income Tax act.

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