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Duration Management

Debt funds invest in debt papers which need to give good fixed returns & be of good quality.

Based on the interest rate outlook, the fund manager decides whether to invest in long duration papers or short duration papers.

But how is his decision of selecting long duration papers or short duration papers connected with the interest rate outlook..?

Simply speaking, when interest rates are expected to go up, the debt fund manager would invest in shorter duration papers but if interest rates are expected to come down, then he would do the opposite and invest in longer duration papers.

  1. When a fund manager thinks that interest rates are likely to go up in the near future, it means that debt papers in the future will offer better rates of return.
  2. Even he observes that as the interest rates are likely to rise soon and debt papers gives a higher interest rates which would become available, he invests in papers with shorter maturities, so that by the time the interest rates rise, his papers have matured and he has cash to invest in the new papers.

Now what happens when the debt fund manager believes that interest rate is more likely to come down…?

  1. He just reverses his strategy and invests in long duration papers. so, his money stays invested in higher interest bearing papers even in a lower interest rate regime.
  2. The value of the higher interest bearing papers too would go up and the fund manager too could extract a higher price by selling it in the market…!
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20 Reasons to have Term Insurance

WHY Term Insurance..?

  1. Large cover at affordable rates and your premium remain fixed for the entire policy duration.
  2. Bills don’t stop when the pay check stops, Term Insurance helps during your uncertain tomorrow.
  3. In case of Permanent Disability due to accident, all future premiums are waived off, and the life cover continues for the remaining policy duration. This benefit comes in-built in your policy without any extra cost.
  4. Builds an asset the minute you contribute your first premium unlike other Financial Instruments.
  5. Term Insurance offers Financial Freedom, filling the absence of the bread winner due to uncertainty.
  6. Life stage benefit gives you an option to increase the cover after marriage. Additional premium will be calculated based on the increased life cover without any medicals and remaining policy term as per your age at the time of each such increase.
  7. Ensures the dignity of your family is not at stake.
  8. Terminal Illness are not only life threatening but can also spell financial ruin. This benefit helps you fight those illnesses by paying 100% of your life cover amount before death. Some policies cover aids as well. This benefit comes in-built in your policy without any extra cost.
  9. A powerful tool which helps in creating contingency fund in the need of the hour.
  10. Critical Benefit option gives full claim pay-out on the first diagnosis of illnesses like cancer, heart attack, kidney failure and many more. No hospital bills required. Future Premium burden gets reduced in case of payment under critical  illness, thereby savings which can be utilized for other priorities.
  11. Premium paid    and benefits received are eligible for tax benefits under section 80C and 10(10D).
  12. Accident Death Benefit Rider ensures your family need not liquidate the existing assets to meet emergencies but safeguarding at a very minimal premium.
  13. Your child has every right for a good education Term Insurance provides you the authorization to ensure that right.
  14. Acts a Trust if there is an absolute assignment in the form of Married Woman Property Act (MWP Act). No authority is liable to attach this property in case of outstanding dues.
  15. Leave an Estate for the loved ones. Even if all your investments fail in your absence, the Death Benefit safeguards their future sustaining same same standard of living.
  16. To be underinsured is the greatest gamble you could take. If you lose, it’s not you but your family pays. Term Insurance protects your family from your debts.
  17. If you are businessman and keen for succession planning, Term Insurance assures your aspirations come true.
  18. You are worth much more than you think. Option to enhance Life Cover at important milestones because your family aspirations are your commitment.
  19. A perfect Tool to create Contingency Fund for partnership firms in case of demise of a Partner to settle the Partner’s Share. Great Tax Benefit Tool for partnership firms.
  20. Great Tax Benefit Tool for an organization if opting Key Person Insurance for all the Key people. Addresses the need of Replacement Cost, should the key person or persons of an Organization have insured and on their demise.
  21. Term Insurance offers peace of mind, dignity, respect, confidence and happiness. All in the same package with protection.

Some points are subject to Rider availability in Term Insurance.

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LIQUID FUND

Where do you invest your salary when you receive?

Do you spend the entire amount of your salary as soon as you receive?

Till you spend your salary where does your money lies.

Do you know?

If you park some portion of your salary in liquid funds till you actually require, the income earned from such investment will take care of some of your expenses.

Liquid investment means any investment that can be easily converted into cash without having a significant impact on its value.

What is Liquid Fund?

Liquid Funds are open ended debt funds that invests in high-credit quality fixed income instruments with short term maturity.  These debt securities comprise money market instruments such as government treasury bills, commercial paper, corporate bonds, certificates of deposits with maturity period up to 91 days.

How do liquid funds work?

Net Asset Value of liquid fund doesn’t fluctuate much as other funds.

Units are allotted as per previous day’s Net Asset Value if application is received before 1 p.m.

Withdrawal requests are processed in 24 hrs.

For regular transactions, with click of a button you can transact for purchase, switch or redemption.

What are the benefits of investing in liquid fund?

1.Higher Returns than Savings Account/Fixed Deposits:

Liquid funds are gaining popularity amongst the retail investors because of their ability to deliver higher returns when compared to investment in Bank Fixed Deposits or Savings Account. Also, their high liquidity makes them a better alternative to Savings Account, given that the returns are comparatively higher for liquid funds.

There is no drop in investment value.

2. No lock-in period: 

Withdrawals from liquid funds are processed within 24 hours on business days.

3. No entry and exit load: 

Unlike Fixed deposits, there is no penalty for exiting or breaking them.

4. Taxation:

Tax benefit compared to savings account and fixed deposit. Indexation benefit if withdrawn after 3 years.

Diversification: Risk is divided in Liquid Funds due to investments in various Corporates and government Securities.

Is there any Risk associated with Liquid Fund?

Although liquid funds are not entirely risk-free, however, they are low risk-low returns and less volatile instruments. As they invest predominantly in debt instruments, they are subject to interest rate risk and credit risk. A change in the prevailing interest rates may cause a difference in the price of the debt instruments.

Interest Risk

A jump in yields causes prices of bonds to fall because of which most debt funds suffer. When the interest rates rise, the bond prices fall, and when interest rates fall, the bond prices rise. The bond’s yield on a price curve is steeper as the duration of the debt instrument increases.

Credit Risk

Liquid funds also invest in non-government debt like commercial papers, corporate bonds, certificate of deposits among other instruments. If any bond or commercial paper, fails to honor the repayment, the instrument will be downgraded. When the creditworthiness of the issuer is reduced, it has a bearing on the bond price too. Downgrading of the issuer will lead to a fall in bond prices which will, in turn, affect the fund’s net asset value.

Putting money in a fixed deposit may serve the purpose, but only to a limited extent. One of the big benefits of a fixed deposit is the safety. At the same time, one of the limitations of fixed deposit is often ignored, the money can be parked for a fixed period only, there is no flexibility regarding the period of parking. That is where liquid mutual funds could be considered.

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Why to invest in India?

  1. Strong infrastructure spending.
  2. Sustained high growth in India’s domestic consumption.
  3. Increasing Urbanization and Metro Culture.
  4. Majority of India’s population is in ‘working class’ category.
  5. Opening up of the Indian economy to foreign investment.
  6. Strengthening of the domestic financial system.
  7. Liberalization of imports.
  8. Rationalization of interest and exchange rates.
  9. Undeniably, foreign direct investment (FDI) in recent years.
  10. The Indian stock and debt markets (including banks and mutual funds) are well regulated by the Securities and Exchange Board of India and the RBI.
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Which asset class to invest in?

  1. Small Savings Schemes:
    NRIs are not permitted to invest in bearer securities like Indira Vikas Patra / Kisan Vikas Patra. NRIs were earlier allowed to make investments in National Savings Certificates subject to the terms and conditions applicable to the sale/ issue of such certificates; however, now investments in NSC by NRI have been barred. NRIs are not allowed to make any fresh investments in Public Provident Fund. Investment already made, if any, shall persist. NRIs are not allowed to invest in the ongoing series of RBI Bonds. NRIs who are senior citizens shall not be allowed to invest in the recently introduced Senior Citizen Savings Scheme 2004.
  2. Government securities / Units of Unit Trust of India:
    NRIs are permitted to invest in Government securities through primary dealers. They are also permitted to invest in units of UTI, either through authorized dealers or directly from the Unit Trust of India. These investments are freely transferrable and saleable through authorised dealers or upon repurchase by UTI. The maturity proceeds can be repatriated, provided these are purchased out of funds remitted from abroad or from NRE/FCNR accounts.
  3. Bonds, Company Deposits and Commercial Papers:
    NRIs are permitted to purchase non-convertible debentures of Indian Companies. They may also place their funds in Fixed Deposits with Public Limited Companies. NRIs are also allowed to invest in commercial papers issued by Indian companies on non repatriable basis. These are non transferable and are required to be held till maturity. NRIs can invest in bonds issued by Public Sector Units (PSU’s) from NRE account on repatriable basis.
  4. Shares / Convertible Debentures of Indian companies:
    NRIs can make investments in shares and convertible debentures of Indian Companies both on repatriation and non repatriation basis. This is provided the company is not involved in plantation, real estate or agricultural business. NRIs can make investments both in the primary as well as secondary market.
  5. Portfolio Investment Scheme (PIS):
    NRIs are allowed to invest in shares or debentures of Indian companies and mutual fund units through the stock exchanges in India, both on repatriation and non repatriation basis. These purchases can be made only through the designated branch of an authorised dealer. The NRI can select only one such designated branch for the purpose of investments through PIS. Although not necessary, it is advisable to maintain a bank account with the designated branch for administrative convenience.
  6. There are ceilings for investments made by NRI/OCB/PIO/FII in shares of Indian companies. Individually, the above entities may invest up to 5% of the total paid up capital (equity + preference) of the company. This limit shall include investment under PIS, both on repatriable as well as non repatriable basis. Besides the individual limit, there is an overall limit up to 10% of the paid up capital of the company, which can be increased to 24% by passing a special resolution in a shareholders’ meeting. Investments made through IPOs are excluded for the purpose the limits mentioned above.
  7. Mutual Funds:
    NRIs are permitted to invest in mutual funds both on repatriable as well as non repatriable basis. However, investments in Money Market Mutual Funds can be made only on non repatriable basis. There is no limit for investment in domestic mutual funds.
  8. Real Estate:
    General permission is available to a NRI, being an Indian Citizen, to invest in immovable property in India, provided funds are if from outside India or through NRE/ FCNR accounts.
    NRIs / PIOs can freely rent out their immovable properties, without seeking any permission from RBI.

They are permitted to transfer the immovable property to any person resident in India, NRI or PIO. The sale proceeds are allowed to be repatriated if the property is acquired as per applicable exchange control laws and the amount does not exceed the following:

In the case of residential property, the repatriation of sale proceeds is restricted to not more than two such properties.

  1. The amount paid for acquisition of the immovable property in foreign exchange or
  2. The foreign currency equivalent of the amount paid where the payment is made from funds held in NRE account for acquisition of the property
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About NRI, PIO

Who is a non-resident Indian (NRI)?

“Non-Resident Indian (NRI) means a person resident outside India who is a citizen of India or is a person of Indian origin.

The following are the main three categories of NRIs:-

  1. Indian citizens who stay abroad for employment or for carrying on a business or vocation or any other purpose in circumstances indicating an indefinite period of stay abroad.
  2. Indian citizens working abroad on assignment with foreign government agencies like United Nations Organization (UNO), including its affiliates, International Monetary Fund (IMF), World Bank etc.

Officials of Central and State Government and Public Sector undertaking deputed abroad on temporary assignments or posted to their offices, including Indian diplomat missions, abroad.

Who is a person of Indian Origin?

For the purposes of availing of the facilities of opening and maintenance of bank accounts and investments in shares/securities in India

  1. Person of Indian origin means a citizen of any country other than Pakistan or Bangladesh
  2. if
    he at any time, held an Indian passport
  3. or
    he or either of his parents for any of his grand parents was a citizen of India by virtue of the constitution of India or Citizenship Act, 1955 (57 of 1995)
  4. or
    the person is a spouse of an Indian citizen or a person referred to in clause (a) or (b)

For investments in immovable properties;

Person of Indian origin means an individual (not being a citizen of Pakistan or Bangladesh or Afghanistan or Bhutan or Sri Lanka or Nepal or China or Iran)who at any time, held an Indian passport or who or either of whose father or whose grandfather was a citizen of India by virtue of the Construction of India or the Citizenship Act, 1955 (57 of 1955)

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About OCB

Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent of at least 60% by individuals of Indian nationality or origin resident outside India as also overseas trusts in which at least 60% of the beneficial interest is irrevocably held by such persons. Such ownership interest should be actually held by them and not in the capacity as nominees. The various facilities granted to NRIs are also available with certain exceptions to OCBs so as long as the ownership/beneficial interest held in them by NRIs continues to be at least 60%
What are the various facilities available to NRIs/OCBs?

NRIs/OCBs are granted the following facilities:

  1. Maintenance of bank accounts in India.
  2. Investment in securities/shares of, and deposits with Indian firms/ companies.
  3. Investments in immovable properties in India.
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Difference between NRI, PIO and OCI

NRI PIO PIO Card Holde OCI
Definition A citizen of India, holding an Indian passport, but residing abroad A foreign national who has Indian origins or Indian ancestors. A PIO holding a PIO Card, as per the Scheme of The Ministry of Home Affairs, 2002 Overseas Indians who migrated from India after 26th January, 1950, except those from Pakistan and Bangladesh
Apply to 1) Any Indian Mission abroad or,
2) Any of the Foreigners Regional Registration Offices in India or
3) The Joint Secretary (Foreigners), Ministry of Home Affairs
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Scope of Income & its Tax structure

Particulars Ordinary Non Ordinary Non
  Resident Resident Resident
  Taxable Income Y/N
Income received in India whether accrued in or outside India Y Y Y
Income deemed tobe received in India whether accrued in or outside India Y Y Y
Income accrued in India whether received in or outside India Y Y Y
Income deemed tobe accrued in India whether received in or outside India Y Y Y
Income (other than business or profession setup in India) accrued or received outside India Y N N
Income from business setup in India accrued or received outside India Y Y N
Income remitted to India Y N N
Past untaxed income remitted to India N N N
Agriculture income from agricultural Land N N N
Gifts received in cash or kind by relatives N N N