HDFC Platinum Deposits @10% pa

HDFC Platinum Deposits – 3 Decades of excellence

Team CrawFin/Harshal Jawale, CFP^CM

With consistent performance for over three decades, HDFC Ltd. has earned its credibility from over 10 lakh depositors.

Interest Rates – 9.5 -10% for Individuals, 0.25% extra for Senior Citizens

Minimum Amount – INR 20,000

Duration – 15, 33, 60 months

Options ---

1. Monthly Income Plan - monthly interest payout
2. Non-Cumulative Plan – quarterly/ half yearly
3. Annual Income Plan – yearly
4. Cumulative Plan – lump sum

Best Option – Platinum Cumulative option for 15 months with 10%/pa Interest rate.

Depositor can benefit from -

1.             Highest Safety - AAA rating from both CRISIL and ICRA for 17 consecutive years
2.             Attractive & Assured Returns
3.             A wide range of deposits products to choose from
4.             Quick Loan against Deposit facility

Resident Individual Investors ---

Depositors can choose from a wide range of deposit products with maturities ranging from 12 to 60 months at competitive rates of interest and with different features to suit the investment needs of individuals. Senior citizens who are 60 years and above are offered an additional 0.25% p.a. on all deposit products

NRIs ---

Deposits from Non-Resident Indians and Persons of Indian Origin resident outside India holding PIO Card are accepted in accordance with the regulations governing the acceptance of deposits from NRIs. Depositors can choose from a wide range of deposit products with maturities ranging from 12 to 36 months at competitive rates of interest and with different features to suit investment needs of individuals. Senior citizens who are 60 years and above are offered an additional interest of 0.25% p.a. on all deposit products

Our Assessment –

With HDFC Ltd track record, its rating and interest offering at 10% is very attractive as against any bank deposit (9.25-9.6%) as on date. Only Company Fixed deposits are offering higher interest in the range of 10.75-12%/pa today with higher interest with high risks.

We recommend strong buy on HDFC Platinum deposits instead of any bank FD or PPF investments for some time i.e. as long as high interest remains.

NRIs and residents can ‘exchange' more now

Source – Business Line

In a move that might make life a little easier for Non-Resident Indians (NRIs), the RBI, in September, announced a series of liberalisation policies with respect to foreign exchange transactions. Here are a few such changes that will simplify the process of remittances both in and out of the country.

Convenience of joint holding

Resident Indians were earlier not allowed to hold a joint local savings bank account with their NRI relatives. A savings account holder in India, for instance, was not allowed to have his/her NRI spouse as a joint account holder. This has changed now. A resident individual is now permitted to include close NRI relatives as joint holders on a ‘former' or ‘survivor' basis. This is applicable for Exchange Earners' Foreign currency (EEFC) accounts and Resident Foreign Currency (RFC) accounts of the local resident, as well. However, the former or survivor clause means that the NRI joint account holder cannot operate the account during the lifetime of the local resident. The move, nevertheless, helps secure another person to immediately operate the account in the event of sudden demise of the local account-holder.

Another, more significant, move by the RBI is to allow a local resident to be a joint holder for NRE/FCNR accounts held by NRIs/ Persons of Indian Origin (PIO). For instance, your son living in the US will now be able to include you as a joint account holder, on a ‘former' or survivor' basis for his NRE account. You can continue to operate the account with a power of attorney, even during the lifetime of the NRI. Before this change, NRE accounts could have a local resident power of attorney holder but not a local joint account-holder.

Gift liberally

Are you a savvy investor, wanting to give away wealth-building gifts? You can now do it more liberally. A person resident in India can now transfer securities such as shares/convertible debentures, by way of gift, to any person outside India, up to $50,000 in a financial year. This limit was earlier $25,000 in a calendar year. Note the difference here - the transfer period will be a12-month period from April to March and not January to December.

If you do not care much for shares, fret not, for you can gift in Indian rupees too. A resident Indian can now make a rupee gift to NRI/PIO who is a close relative, provided it is within the overall limit of $200,000 of outward remittance permitted in a financial year under the Liberalised Remittance Scheme of the RBI. The change here is that such gift can be made through a crossed rupee cheque or an electronic transfer to the Non-Resident Ordinary Rupee account (NRO account) of the NRI/PIO. Earlier, such a credit was not possible in rupee terms in to an NRO account.

Lend in rupees

You can now also lend to your NRI/PIO relative in rupees within the overall limit of $200,000 an annum. This however, comes with a few strings. One, the loan shall be interest-free and have a repayment schedule of not less than one year. Two, the loan shall be utilised only for the borrower's (an NRI/PIO) personal requirements for his own business purpose in India. Such business shall not include any activities related to chit fund/ Nidhi company, agriculture or plantation activities or trading in transferable development rights.

Such loan can be credited to the borrower's NRO account in India and the loan amount shall not be remitted outside India. Repayment can be made through normal banking channels or through the borrower's NRO/NRE/FCNR account. The borrower can also sell shares or securities or any immovable property (against which loan was granted) to repay the loan.

Zero-interest need not be zero-cost

Source – Business Line

With Diwali just ten days away, marketers of all hues will soon step on the gas. Discount sales, easy repayment options and a host of special offers will be unleashed to entice customers to loosen their purse strings.

The time-tested (but frowned upon by the RBI) ‘zero per cent interest schemes' may also make a comeback. This sales promotion technique allows customers to pay for their big-ticket purchases in instalments, with no interest being charged for the staggered payments.

For instance, a customer buying a consumer durable costing Rs 24,000 may be allowed to settle dues in 6 instalments of Rs 4,000 each. Sounds good, right?

Pay easy with no additional interest cost. This unique selling proposition of zero-interest schemes has for long managed to draw crowds to the stores. At face value, such schemes do seem quite attractive from the perspective of potential customers. For one, there is no need to pay the entire amount upfront. This makes the purchase seem within reach of even those who otherwise can't afford it.

Besides, unlike normal financing schemes, there is (supposedly) no extra cost charged to the customer in ‘zero per cent' interest schemes. But should customers bite the bait, without testing the waters?

HIDDEN COSTS

As the cliché goes, if it's too good to be true, it probably is. And like many seemingly good things in life, ‘zero-interest schemes' too may have their stings in the tails. Sure, interest cost may be ‘zero'. However, there is often a ‘processing fee' to be borne by customers, which puts to naught the hard-sell of ‘no additional cost'.

Let's assume a processing fee of Rs 1,000 in the case above. This works out to 4.2 per cent on the financed amount of Rs 24,000 for 6 months and 8.4 per cent on an annualised basis. That's not all. Those choosing zero-interest schemes are often not allowed other discounts offered by sellers.

Suppose, in the case above, customers making an up-front payment are allowed a discount of Rs 1,500, which is not extended to those going in for zero-interest schemes. Foregoing the discount is in effect an additional cost, which on Rs 24,000 works out to 6.25 per cent for six months, and 12.5 per cent on an annualised basis. Combined, the processing fee and the discount foregone would have added a cost of around 21 per cent (annualised) for those choosing the zero-interest scheme. Not such a ‘great deal' anymore?

The picture could get even more discouraging, if customers are required to pay some instalments upfront. Say, in the case above, two instalments adding up to Rs 8,000 need to be paid at the time of signing up for the zero-interest scheme.

The customer is effectively being financed only for the balance amount (Rs 16,000). Now, the processing fee of Rs 1,000 and discount foregone of Rs 1,500 add up to a total cost of 15.6 per cent on a six-month basis and 31.3 per cent on an annualised basis.

DO THE MATH

Given that zero per cent interest schemes may lack transparency and may distort pricing, the RBI had, in as early as 2002, issued a circular advising banks to refrain from offering such schemes for consumer durables.

So, over the last few years, the incidence of banks offering zero-interest schemes has declined. However, many non-banking finance companies (NBFCs) continue to tie up with manufacturers and dealers to provide such offers, especially in the festival season.

Before signing up, customers would do well to read the fine print, and do the math (processing fees and their reasonableness, discounts foregone and effective amount of financing) to ensure that they are indeed getting a good deal.

Finally, it's advisable not give in to impulsive buying urges in the festival season, merely because there are ‘discounts' and ‘schemes' to boot.

Remember, you finally need to settle the bill, even under the best offer.

Financial Plan - 3

Plan for your children's changing career goals

Source – Business Line

I am a businessman aged 38. I have four dependents – my wife, two sons aged 11 and 6 years, and a daughter aged two. My monthly income is Rs 1.55 lakh. After meeting my household expenses of Rs 20,000 and other liabilities and investments, I have surplus of Rs 61,700. I am planning to buy one more house in the near future, after which my monthly surplus will be Rs 26,700. I have a few business commitments. Once that is over, by 2013, my monthly income is likely to go up by Rs 3 lakh. I have a floater health plan for Rs 5 lakh.

Liabilities: I have taken a home loan for Rs 23 lakh with a tenure of 10 years and my EMI is Rs 30,500. The new house would entail a loan of Rs 27 lakh for a tenure of 10 years with EMI of Rs 35,000. I may let out this for Rs 10,000. I have a car loan for which I pay an EMI of Rs 9,800 and the balance tenure is three years. I have a term insurance plan for Rs 25 lakh for 30 years.

Investment: I have recently started investing Rs 20,000 monthly in six mutual funds. I have three life insurance policies of which two are ULIPs and the total cover is Rs 16.25 lakh for which I pay a premium of Rs 1.2 lakh. As the ULIPs are only three-year policies, my last due is next year. I am contributing Rs 3,000 a month for the last two years, for a five-year postal RD. For my investments I am open to taking higher risk.

My concerns: My elder son is planning to do Chartered Accountancy and the costs can be managed with my current savings. But for my second son's higher education, I may require Rs 6 lakh at today's value. For my daughter's education, I want to accumulate Rs 6 lakh in today's value. For my daughter's marriage I may require Rs 8-10 lakh at today's value.

After retirement, I may need Rs 20,000 for household expenses. How much should I save if my wife and I want to live comfortably till the age of 80 years? — Madhu

Solutions

With controlled monthly expenses and a substantial jump expected in your income, reaching all your goals will not be a challenge. What you need to concentrate on is asset allocation.

With good monthly cash flows, your investments are not reflecting your stated risk appetite. But note that for an entrepreneur, cash flows may fluctuate . With your current surplus you have to create a contingency fund and such funds should have liquidity.

Steady cash flows are essential to achieve financial goals. We have constructed this plan based on your current disposable income and if there is any drastic change in the income, you need to revisit your investments. Review your portfolio at least once in six months.

Higher Education: Few of us can tell what course a child in primary school will pursue when he or she grows up. But going by the common choices of today, we can plan for their education. In your case you have said that your elder son will only purse CA and you need not make any provision for that. This is not the right strategy.

It is better to assume that he may have a different choice when he grows up. Make a provision for such a change of heart. Your second son's anticipated higher education cost of Rs 6 lakh will be Rs 12.6 lakh if inflated at 7 per cent (for all the calculations, we presumed the same inflation) for 11 years. To reach the target, you need to save Rs 4,670 a month and it should earn a return of 12 per cent (same return presumed for all calculation).

Your daughter's higher education is 14 years away and the present cost of Rs 6 lakh will be Rs 15.5 lakh. To reach the target you need to save monthly Rs 3,600. For her marriage you need to build a corpus of Rs 44 lakh in the next 22 years for which you ought to save Rs 3,500 a month.

Retirement: While building the retirement corpus, it should not be watertight in accommodating expenses. Going by your likely future income, your standard of living is likely to increase, which may leads to higher household expenses.

It may not be ideal to build a retirement corpus based on present annual living expenses. It is better to re-evaluate your requirement if there is any major change in lifestyle.

The present annual living cost of Rs 2.4 lakh will be Rs 10.6 lakh when you turn 60. To have such a pension, it is ideal to have a corpus of Rs 1.74 crore at retirement. To accumulate the corpus you need to save monthly Rs 13,500 for the next 264 months.

Investment and insurance: It's surprising to see that with such good cash flows, you decided to pay premiums only for three years on your ULIPs. This is a long-term product. We often see investors selecting a wrong product and failing to reap the benefits. We suggest that you pay premiums till the maturity of the plan. Whenever you start fresh investments, earmark a goal towards the investment.

A few of your current MF investments are inline with our regular recommendations. Once your tax saving obligations are met, discontinue the SIP in Birla Tax Relief 96 and increase your contribution to HDFC Top 200 and ICICI Pru Dynamic. Restrict your MF portfolio to four to five schemes. Discontinue your postal recurring deposit and start a fresh recurring deposit for 10 years in a bank to take advantage of the prevailing high interest rates.

As you have not disclosed your business liability, we suggest you take a term insurance for Rs 1.5 crore to secure your monthly expenses and all your goals. We suggest an asset allocation of 60:30:10 in equity, debt and gold.

Fraud - Abhinav Gold International

Two frauds unearthed as organisers fail to pay back

Source – Times of India

SURAT: Two major financial frauds cropped up in the city on Wednesday. While the first pertains to a gold financing scheme, the second has to do with Haj travel. In both cases, middle-class people lost hard-earned money. The crime branch registered a plaint against the promoters and agents of Abhinav Gold International Pvt Ltd, Anil Shankar Birla and Murlidhar Shankar Birla, both residents of Pur Road, Pansal Chauraha, Bhilvada, Rajasthan, and Rohit Dahya Thakkar, an Adajan area resident of the city.

The plaint has been lodged by Rakesh Dhansukh Rajjoshi, resident of Silver Plaza apartment, Anand Mahel Road, one of the victims and had invested total Rs 75,000 in the scheme. Rajjoshi said in his plaint that the company offered a scheme in which an individual could earn benefits every two months on investing Rs 6,000 in gold. The company collected Rs 6,000 from each investor which was promised to be invested in gold.

Around 20,000 people from the city invested in the scheme and the total amount of the money collected by the company is yet to be ascertained.

The company promised returns of Rs 42 at the end of first two months after next two months Rs 84 was promised. The amount was doubled every two months taking the total amount to Rs 1.72 lakh at the end of two years. After initial payments the company stopped paying the investors.

Despite several reminders the company did not paid the money to investors following which Rajjoshi approached police. Investigation so far revealed that a large number of investors from across the country invested in the company.

In another alleged fraud, a group of Haj pilgrim gheraoed the residence of a Haj organiser on Wednesday to collect their passports, visa documents and fees paid. The organizer, Ayyub Dhol, went missing from his office and residence. The pilgrims alleged that each pilgrim paid Rs 2.5 lakh for Haj and had given their passports for processing but they were not sent on Haj. Around 200 pilgrims had paid Dhol.

The last date for Haj being October 15, the pilgrims rushed to the organizeras office to collect their money. However, no police complaint has been lodged in the incident.

Insurance + Investment + Tax = Bad Combination

Source – CNBC TV18

WE live in a world of combinations (or combos)! Inspired by the McDonald's way of life where we buy fantastic combo meals of burger + Pepsi + fries, we seem to want everything in the combo format. And why not? It's great value for money.

We could follow this mantra for other purchases as well. Life insurance for instance. Marketers have made us believe that we are buying great value for money when we buy life insurance as a device for protection + investment + tax.

But hold on a minute! Our approach to buying junk food cannot possibly be the same as our approach to buying security for our family!

Talk to any financial expert and the first thing he will tell you is you should never buy insurance for investments or to save tax. Buy insurance only to insure yourself and to give your dependents financial freedom and security.

Don't mix insurance and tax

The tax-saving spiel is particularly over done because under section 80C of the Income Tax Act the premium on your policy is deductible. Statistics reveal that on an average 30% of annual premiums of life insurance companies come in the month of March. This is a clear indication of the fact that people buy insurance to save tax.

Tax should probably be the last consideration while buying life insurance. Amount of life insurance that a person requires should depend on his income level, total expenditure, the number of dependents and debts outstanding but definitely not the tax to be saved.

Shailesh, 35, has a taxable salary income of Rs 5 lakh (Rs 500,000) per annum. His tax saving instruments till date included investments in provident fund, postal savings and pension policy of up to Rs 75,000.

Lured by the buzz that insurance marketers have created about insurance and tax saving, he now wants to invest up to Rs 25,000 towards premium of an endowment policy. He congratulates himself for his smart move -- getting insurance cover and tax saving together!

For that kind of premium, the maximum sum insured that he gets is Rs 5 lakh. The million-dollar question is -- Is that enough to support his dependents in the unfortunate case of his death?

Shaliesh has a monthly expenditure of Rs 10,000 and an EMI of Rs 7,000 on his home loan. Current value of his other investments is Rs 8 lakh (800,000). Now at an assumed inflation rate of 6%, rough calculations estimate that he would need an insurance of at least Rs 33 lakh (Rs 3.3 million).

Make the right move

So what should Shailesh have done instead?

It's simple: Only a pure risk cover term policy can offer him such a large cover at a low rate of premium. He could have paid just Rs 10,000 per annum and got himself a cover worth Rs 33 lakh. Since this is not an investment product, the premium will be expensed and he will not get any returns on it. But his prime motive has been amply served.

Of course, this doesn't mean that all combo's are bad. In fact, the Maharaja Mac Combo Meal at Mac Donald's is a particularly good deal and tasty as hell. But that's where the combo mania should stop!

Sensex – Excellent benchmark

Team CrawFin/ Harshal Jawale, CFP^CM

While media reports to rise and fall of Sensex on daily basis, it is more important for us as an investor to understand what is happening with our own portfolio during long enough timeframe. I am not a believer of watching Sensex everyday yet I think it is most important indicator to understand what is happening with overall stock markets in terms of sentiments, money flows, stock pickings etc to fine-tune our own portfolio.

History –

Bombay Stock Exchange (BSE) located at Dalal Street, Mumbai and is the oldest stock exchange in Asia. There are over 5000 companies listed on BSE i.e. largest in number in the world. Sensex that constitutes top 30 companies forms 42% of the total market capitalization. This high weight of top 30 makes it key indicator to the representation of the total market. Top 200 companies constitute around 95% of the total daily turnover.

The Bombay Stock Exchange (BSE) regularly reviews and modifies its composition to be sure it reflects current market conditions. The index is calculated based on a free float capitalization method—a variation of the market capitalization method. Instead of using a company's outstanding shares it uses its float, or shares that are readily available for trading. The free-float method, therefore, does not include restricted stocks, such as those held by promoters, government and strategic investors.

Why Benchmark? –

1. Using information from April 1979 (The base value of the SENSEX is taken as 100 on April 1, 1979) onwards, the long-run rate of return on the BSE SENSEX works out to be 18.6% per annum, which translates to roughly 9% per annum after compensating for inflation. (In contrast to what we earn through FD or PF who merely replace inflation, meaning we do not actually earn anything but just replace the depreciating value of money)
2. Regular modification made within composition of Sensex keeps it stronger. For Example – Rel Cap was replaced with Sun pharma and Rel Infra was replaced with Coal India on 8^th Aug 2011. This way bad performer gets kicked out and good performer keep coming in. This is what we essentially want to happen with our own portfolio.
3. While creating composition it should also be noted that not too much of weight is given to a particular sector. For Example – Axis Bank/PNB is worth to enter into top 30 companies with all the parameters except the fact that SBI+ICICI+HDFC is tough to beat and completes the required weight within the index. This brings in diversification that is essential within portfolio.

Composition –

Current top 30 that constitutes Sensex (alphabetically) are given below

Bajaj Auto, Bharti Airtel, BHEL, Cipla, Coal India, DLF, HDFC Ltd, HDFC Bank, Hero Motocorp, Hindalco Ind, HUL, ICICI Bank, Infosys, ITC, JP Associates, Jindal Steel & Power, L&T, M&M, Maruti, NTPC, ONGC, Reliance Ind, SBI, Sterlite Ind, Sun Pharma, TCS, Tata Power, Tata Steel, Wipro.

Companies that were part of Sensex at some point of time since 2001 are –

Novartis, NIIT Ltd, Reliance Petroleum, Castrol, Colgate Palmolive, Glaxo Smithkline Pharma, HCL Tech, Nestle, MTNL, HPCL, Zee Telefilms, Dr Reddys lab, Ambuja Cement, Satyam, Ranbaxy, Grasim, ACC, Reliance Infrastructure, Reliance Capital.

According to me if your portfolio is consistently beating Sensex then you are doing excellent job in terms of replacing bad ones with good ones.

Please Note – One can also keep Nifty (top 50 companies trading in NSE) as a benchmark. All the above concerns are similar in nature except that fact that top 30 will be replace by top 50.

Car Insurance - Overview

Team CrawFin/ Harshal Jawale, CFP^CM

Automobile market in India is zooming month after month. At some point we all wish to purchase a car which still is a status symbol all over the world. Although the purchase price of it gradually coming down as most car manufacturers are making India as a hub; it is its overhead costs like fuel, maintenance, several taxes, insurance and last but not the least parking makes it unaffordable at times. In this article I am trying to give general idea about car insurance policy.

It is mandatory to have car insurance under the Motor Vehicles Act 1988 to get your car insured as soon as you purchase it. Insurance annual premium usually is in the range of 2-3% of the IDV of your car.

There are two types of car insurance: Third Party Insurance and Comprehensive Insurance

Third party insurance protects a policy holder against losses which arise due to bodily injury/death to a third party or any damage to its property. Meaning if you as a driver hit anyone or anyone’s property then this insurance cover pays for the damages claimed. It is mandatory by law to have third party insurance.

However this insurance doesn't protect you against losses which arise due to bodily injury/death to you, your vehicle and co-passengers. If you want to be compensated for any damages to you, co-passengers and your vehicle in addition to third party coverage, then you need to purchase comprehensive car insurance. Comprehensive car insurance policy is better as it provides both third party coverage and damages/loss to one's own vehicle, co-passengers or self.

Insurance companies have historical data to understand trends in accidental claims. The pricing is based on car make, model, year, place of registration etc. Car insurance premium is based on market opportunity, risk assessment and claims experience of the insurance company. There are other factors that affect discounts on the base premium they are channel for buying insurance, the vehicle and your profile.

If the car insurance buying process were transparent, it would be easy for customer shopping for it. There exists difference in premiums offered from different sourcing channels. The customer has no way of knowing where the best rate can be obtained.

1. Car dealer - Most customers rely on insurance offered by car dealers, but it may not be optimum premium rate. For new vehicles car manufacturers does not want variation in pricing, they usually offer large discounts because new car buyers do not shop around for insurance and are gullible targets. At the time of renewal car dealer may not be able to offer similar kind of discounts. 
2. Insurance broker – they are an option for an unbiased view on insurance products from different companies. Since they tied up with many insurance companies, they will not sell you a particular company policy for their own benefit.
3. The insurance company agent can give you quote for one company but it will be tedious to call numerous agents to get comparative rates.
4. Purchasing from websites like policybazaar.com is not easy either. In motor insurance channel conflict is common: there are different discounts offered through different channels like Car dealers/ agents/ brokers, hence transparency is not appreciated by the insurer. They are also reluctant to share premium rates with third party like policybazaar. Also car insurance premium change frequently so a website may reflect recent rates.

Of all the intermediaries mentioned above the one who gives higher business and recognized as profitable one, may have small advantage in terms of rates.

According to me customers give undue importance only to one aspect namely premium. Since the differential amount is not high they need to understand who will support them the best at the time of claims; an agent who may have served them for years or it may be a car dealer who gives good service to the vehicle.

Unlike Health insurance and Life Insurance, auto Insurance is price-sensitive as the No-claim bonus (NCB) can be migrated easily to new insurer.

Some points to note –

• Expensive cars usually carry higher discounts as they are driven by chauffeurs or experienced drivers. Vehicles used for rental carry higher premium.
• Petrol cars usually attract lower premiums than diesel/ CNG/LPG cars. Data says diesel cars clock higher usage also diesel engines have higher maintenance and repair cost.
• Locks, airbags, anti theft devices help reduce premium.
• Disclose your claims history when you change your insurer. New insurer will provide policy with not much efforts but at the time of claims they make verification with your previous insurer and reject the claim in case of discrepancy.
• Do not manipulate IDV of your car to reduce insurance premium, it reflects the resale value of your car and plays important role in case of damages.
• The insurance contract is still for vehicle and not for driver; customers with clean record are subsidizing those with bad records. Premium rates are determined only on the basis of vehicle make, year etc and offers no benefits for clean driving except no claim bonus.

There are many Insurance companies that offer motor insurance in India. Some of them are ICICI Lombard, HDFC Ergo, Bharti AXA, United India, The New India Assurance, National Insurance, Iffco-Tokio, Reliance General, Bajaj Allianze, Tata AIG, Future Generali, Shriram general insurance, Royal Sundaram.

"Wealthy Investments need Healthy Methods"

Introduction to Financial Markets - I

Team CrawFin / Harshal Jawale, CFP^CM

Financial Markets are majorly comprised of Stock market, Commodities i.e. Bullion and Agri, Currencies etc. There are other luxurious forms of financial markets including investments into Arts, Wines, PE/VC funding into newly born companies, big real estate projects etc. I will start with well known form of investment i.e. stock market in this article.

Stock Market

Share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company and can be purchased from the stock market.

A stock market allows the trading of company stock and derivatives of company security at an agreed price. It can be done privately called as private placement or publicly at on stock exchange.

Participant in this trade can be simple retail investor, corporate, financial Institution, hedge fund or any high value strategic investor. Trades carry out in the physical form or electronically.

What else can be traded?

Apart from company securities; commodities & currencies can also be traded on global platform.

Importance of stock market, trader and exchange

Listing of securities is the major source of fund raising for the company promoters. It allows them to dilute the stake in the organization and thereby gather funds for expansion plans. Over the short-term stocks can be battered by events, making the stock market behavior difficult to predict. Emotions can drive prices up and down, people are generally not as rational as they think, and the reasons for buying and selling are generally vague. However, these non-rational reactions are opportunities to make money.

Exchange does clearing & settlement of the securities, meaning they are responsible to collect and deliver the shares.

What is trade?

There are several types of stock trade; intraday, delivery based, auction based etc. Buy today sell tomorrow, short sell are sub categories of the types that we discussed above.

Intraday –

In this type one can buy shares and sell it on the same day. Upside will provide the buyer profit here; downside will take him into losses. If one anticipates rise in the stock price because of any reason he/she can buy the shares within this category.

On the contrary if one anticipates that the share price will fall in one day; he can sell the share first and then buy them later in the same day. Note in this case buyer actually borrows the share from his broker and it is mandatory for him to buy them back within the day. This mechanism is called as short sell. Speculators generally use this type to make money on news based events. Cost of this trade ranges from 2-10 paise / 100 rupees.

Delivery based –

It is typically used by investing community to buy in shares and then sell them on any future date. Total amount of investment is taken out from the buyers account by the buyer’s broker and given to the seller’s broker, who in turn deposits it in the seller’s account.

There is no limit to which the buyer can hold the shares in his account. Cost of this trade ranges from 25 – 75 paise / 100 rupees. BSE takes the settlement charges which are to be recovered by the broker. However there is no limit to number of shares that a person can sell at a time.

How to trade?

For buying/selling of a security one has to have Demat account. Though person can have shares in both electronic and physical format, it is always desirable to have it in electronic format as physical share carries risk of getting stolen or even forged. Demat account should be opened with the recognized Depository Participant (DP). List of recognized DP’s can be obtained from the website of CDSL and NSDL.

A broker is separate from a DP. A broker is a member of the stock exchange, who buys and sells shares on his behalf and on behalf of his clients. A DP will just give you an account to hold those shares. When one buys share, share goes into his DP account. Apart from this one also has trading account with the broker. In short when one opens a Demat account he actually opens one trading account and one DP account. Where,

Trading account – when delivery of shares not required and only difference amount is transacted. Client has to deposit investment amount to his own trading account with broker to use for trade. This is because trading members are not allowed to use client’s bank saving account.

DP Account – when delivery of shares is required. Shares are deposited in this account till account owners opts to sell them.

Broker/ DP/ Clearing & Settlement – practically in majority cases they are all handled by broker in India.

Let us illustrate how things happen

Intraday Transaction

Sonia buys 10 shares of TCS on 3rd March at Rs 1200 each. Order gets executed at 11 am. Before end of trade Sonia sells full 10 shares of Infosys at Rs 1220 each. In this case Broker deposits complete (Rs 200 – Transaction cost) to her trading account as a profit.

Delivery Based Transaction

Piyush buys 5 shares of Wipro on 3rd May at Rs 450 each, and keeps them for delivery. Clearing & Settlement member of Demat withdraws Rs 2250 from Piyush’s trading account and deposits 5 shares of TCS into DP account. Delivery of shares as a rule should be done on T+2 basis

"Wealthy Investments need Healthy Methods"

Mahindra Finance FD

Mahindra Finance Samruddhi Fixed Deposit Scheme

Team CrawFin/ Harshal Jawale CFP^CM

Crisil Rating – FAAA (Highest Safety)

Minimum Amount – INR 10,000 for cumulative, INR 25,000 for Non-cumulative

Additional amount multiples – INR 1,000

Interest Payment – Quarterly, Half-yearly, Cumulative

Mode of Interest Payment – ECS/NEFT only

	Cumulative		Non-Cumulative
Period (months)	Interest p.a.	Effective Yield p.a.	Interest pa (half-yearly)	Interest pa (Quarterly)
12	9.5%	9.5%	9.25%	9.15%
18	10%	10.33%	--NA--	--NA--
24	10.25%	10.78%	10%	9.9%
36	10.50%	11.64%	10.25%	10.15%
48	10%	11.60%	9.75%	9.65%
60	10%	12.21%	9.75%	9.65%
Min Amt	INR 10,000		INR 25,000	INR 50,000

** Senior Citizen/ Employees will get 0.25% additional rate p.a.

• All communications with regard to Fixed Deposit should be addressed to the Fixed Deposit Processing Center at Mahindra & Mahindra Financial Services Limited 15, Arcot Street, Opposite M.G.R. Memorial House, T. Nagar, Chennai-600017
• Please note that Company FD is not breakable, Bank FD can be withdrawn with some penalty. Also Bank FD provides Insurance of up to INR 100,000.
• Other details like KYC, Nomination, Loan against FD, Taxation remains same as Bank FD.

Our Assessment

Company FDs are illiquid in nature, but it offers 0.75% to 1% higher rate of interest as against Bank FD. Some reputed companies like JP Associates and Unitech are offering higher interest rates in the range of 11.5-12.5% pa.

I recommend M&M Finance FD (with highest safety rating) for someone who intends to stay in fixed interest asset class. Although major part of their money should be invested into bank FDs, some part of investment into Company FD for higher returns would be a wise option.

Other Company FD Schemes ---

JP Assoc – 11.5%

Unitech – 12%

HDFC Ltd – 9.75%

Dewan Housing Finance Ltd – 10.25%

Shriram Transport Finance – 10.75%