By Tax Team - ABMPersonal InvestmentNew methods of investment
Old Methods• Bank Deposits• Purchase of Gold & Silver Ornaments & Utensils.• Chit Fund• Purchase of Land & Residential Property• Purchase of Shares & Securities.
Pros & Cons of Old MethodsSN Method Pros Cons1 Bank Deposits (a) Fixed rate of return (a) Return are not (b) Safety matching with inflation2 Purchase of Gold & Silver (a) Assured growth (a) Payment for Ornaments & Utensils (b) Safety making charges is a cost (b) Risk of theft (c) Impurity3 Chit Fund (a) Good rate of return (a) Highly Insecure4 Purchase of Land & (a) Assured Growth (a) Huge Investment Residential Property (b) Safety (b) Slow moving5 Purchase of Shares & (a) Good rate of return (a) Volatile & Risky Securities.
Why new methods needed• The return which are getting from secured mode of investments are not matching with inflation.• For Example A fixed deposit made for Rs. 10,000/- today become Rs.16000/- after 5 Years, whereas what we can purchase today for 10,000/- required Rs. 20,000/- after 5 Years.• The return is preety smart in the case of unsecured mode of investment but the risk involved is very high and it may happen that a person will loose the principal amount also• Hence, to meet the inflation we require mixed kind of portfolio which will reduce the risk and increase the return.
New Methods• Investment in Mutual Fund via SIP• Investment in Gold ETF through NSE• Investment in Gold & Silver Units through NSEL.• Investment in LIP
If you do not have time to learn analyzing shares, invest in mutual funds through SIP route• Syatematic Investment Plans (SIP’s) are like a blessing for small investors. People who do not have lot of fund can invest in equity on monthly basis through SIP route. Systematic Investment Plan allows small time investors to even invest money as low as Rs. 1000/- per month. As on today diversified equity fund SIP’s are the most popular among small investors. SIP route of investing in equity linked mutual funds will give advantages to small investors like rupee cost averaging which has other benefits like compounding of money in times to come. SIP Mutual Funds are perfect for those investors who have a long term investing horizon or even for those investors who has short term goals. For short term investors dividend option of mutual fund will be a great alternative. Yearly (or even quarterly) investors will get the dividends earnings in their pocket.
A new investment vehicle called asExchange Traded Fund (ETF’s) is great for long term small investors• ETF is a financial instrument that small investors has loved from their core. Particularly index ETF have proved to be an instant hit with small investors. Exchange Traded funds (ETF’s) combines the advantages of shares and mutual funds. Investing in ETF gives advantage of direct investing like shares and also allows excellent investment diversification opportunity. Exchange Traded Funds is perfect that let how the maket behave they will always give average market returns to investors
What is gold etf• Gold ETF means Gold Exchange Traded Fund . In simple terms , it is a mutual fund for gold , like the mutual fund which invests in shares on your behalf. This mutual fund- i.e Gold ETF – buy gold and safe keep it on your behalf.When you want to sell , you can sell it on the recognised stock exchange . If you want to get the gold in physical form, you can also get it .• Which are Indian mutual fund managing Gold ETF ?• In India , on the date , there are ten GOLD ETF listed on National Stock Exchange which is the only stock exchange where Gold ETF are traded right now. All the usual big players of mutual fund industry are also managing Gold ETF. Here is the list of listed Gold ETF as on 07/01/2011• How can you buy or sell? Purchase of Gold ETF are as simple as buying mutual fund units or shares. You can buy online from these fund managers or many online broking firms like icicidirect and all major online broking firms. So basically you need• Demat account• account with a broker who is a member of NSE to buy a Gold ETF.• Some of the popular brokerage firms like ICICI Direct, HDFC Securities, KOTAK Securities, India Infoline, Geojit, IndiaBulls, Sharekhan gives both the aforesaid facilities. So just open account with them , and you can easily buy or seel from your home.• How will I get the gold ?• When you buy the units of GOLD ETF , the bought units are credited to your demat account. Each unit represents roughly one gram. Therefore, if you have bought 100 units , it means you will get credit for 100 units of GIOLD ETF which represents 100 grams of gold.• Can you convert your bought units from GoldETF in actual gold?• Yes, you can c0onvert the bought units to actual gold at any point of time. So, in aforesaid example , if you want to concert 100 units, you can get 10 grms from the fund which manages your GoldETF.
Process of investment• The Investment should be on regular basis i.e on Monthly basis.• The investment should be made irrespective of the market conditions & other economic factor.• The target of the investment should be long term & not short term.• This investments may not be usable during personal emergencies.
How it works• Once we start the investment on monthly basis, then we come to a situation called “Average”.• Each market moves on cycle, i.e ups & down is common.• Again, due to inflation, the cycle will always move upwards only•
Investment in Mutual fund through SIPMonth NAV of the Investment Unit Market Value Actual Mutual Fund Investment1 Rs. 10 1000 100 1000 10002 Rs. 12 1000 83.33 2200 20003 Rs. 11 1000 90.91 3017 30004 Rs. 8 1000 125 3194 40005 Rs. 6 1000 167 3397 50006 Rs. 10 1000 100 6662 60007 Rs. 13 1000 77 9662 7000 The IRR for the above comes to 11%. The Average return of SIP is 13-15%. However, there are some poor performer also.
Benefits of New Methods• Via SIP Module , you will get benefit of higher return of share market.• Further, no extra knowledge or efforts required for investment thru SIP.• Invest in ETFF will be saving taxes• Return in long term are tax free.• Purchasing of Gold & Silver in Demat form will enable to buy 100% pure in value.• This units & ETS are available in small denomination.