INVESTMENT OPTIONS FOR CONSERVATIVE INVESTOR
CONSERVATIVE INVESTORsAPPROCH
Mr. Verma
I have 2Lakh to Invest.
But Where???
Should I go for Banking/MF?
What if Stock Market crash?
How safe is MF?
Seem to me like a conservative investor But What is Conservative investor?
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Who is a Conservative Investor?
Conservative investor have risk tolerance ranging from low to moderate. Those who have low risk tolerance are often extremely uncomfortable with the stock market and wish to Avoid it entirely. However, although this strategy may protect against inflation in short term. It will not earn the value over time.
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Conservative investor
Conservative Investment
Aninvestment strategythat emphasizesCapital Preservation andRisk Minimization through a Diversification and BalancedPortfolioofLowRiskInvest-ments
CURRENT ECONOMIC SITUATION
Interest Rate Cycle is closely related to economic cycle.
http://indianexpress.com/article/india/india-others/inflation-falls-to-5-yr-low-but-rbi-may-hold-rates/
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Interest Rate Expected To Fall
Present Monetary policy which target inflation at 6% and giving more weightage to inflation over growth indicated by keeping interest rate stable despite the inflation at 23 months low at 7.8%.
Government indicated lower fiscal deficit target and small borrowing program for FY2014-15.
It is Right time to lock-in the present interest rate. When the inflation eases further investor gain from increased Real Interest Return(nominal interest Inflation)
INVESTMENT OPTIONS
Public provident fund
Money market funds
Bank fixed deposits
National savings certificate
Senior citizen savings scheme
Investment in mutual funds
Govt bonds
Investment in insurance policies
Monthly income plans
Investing in a residential property
Guilt and Debt funds
PPF(public provident fund )
Individuals who are residents of India are eligible to open their account under public provident fund scheme .NRIs are not eligible.
Minimum investment 500Rs/-.
Maximum investment 1,50,000Rs/-.
Interest rate 8.7% per Annum.
Duration 15 years.
Principal Contribution is Tax Deductible U/S 80c
Interest Earned - Tax Free
Nomination facility is available
Suitable for Self employed, not covered under EPF.
PPF account is not subject to attachment in any order.
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Bank Fixed Deposits
High level of Capital protection.
Tenure 1-10 years.
Interest rate - 7% - 9.75%;
Interest are compounded Quarterly*; Semi Annually; Annually.
Interest option Withdrawal or Reinvestment.
Tax benefit if invested for more than 5 years.
Tax can be based on Accrual Basis or Cash Basis.
Early withdrawal has a penalty.
Deposits Covered by DICGC.
Additionally investor can also consider Corporate Bonds but are risky.
http://www.pnbhfl.com/deposits/rate-of-interest.aspx
http://www.fundsindia.com/content/jsp/lp/fdeposit.do?utm_source=google&utm_medium=search&utm_term=interest%20rates&utm_content=Beta&utm_campaign=Beta-FixedDeposits&gclid=CjwKEAjwwdOhBRCG0fPrlfO1gGUSJAC1FmHX6X9bGZAdtuRMBunoVKgpIo9NBIRB9ufBCaRx3A98uxoCwfrw_wcB
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Conservative Approach to MF
Investor can Select MF based on their risk appetite Represented as
Low Risk Medium RiskHigh Risk
Tax Implication U/S 80c, Indexation benefit.
Past Performance of the Fund (old Fund).
Past Performance of the Fund Manager.
Cost of the Fund Management.
Other Cost like Entry load and Exit Load can also lower the returns if not considered.
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Mutual Fund
A Professionally managed investment vehicle that pool of funds from Small Investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets with a Common objective.
Kinds of MF
Open Ended
Close Ended
Interval Fund
Gilt Fund and Debt Fund
Offers higher returns than savings accounts.
Returns range from 6 to 20% based on period and risk category.
Debt fund are fairly safe investments as they invest in fixed income securities of governments and corporates.
Indexation Benefit is available under Income Tax Law.
It is advisable to choose Dividend reinvestment for a long term investor.
Debt fund Perform Better in the interest rate down cycle as interest rate and bond prices move in tandem(this was the case during 2004-08).
One of the largest pie of the mutual fund industry.
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What conservative investor look for while SELECTING THE MF
Investment philosophy - Value investment strategy i.e. buy undervalued stock and sell when market find the potential. Some of the Famous people who use this strategy are Warren Buffett.
Diversified Fund and High Dividend Yield.
Low Volatility (additionally LOW Beta and HIGH Sharp, lower volatility of returns).
Diversified asset allocation.
Investor must allocate more towards Large cap and minimize investing in mid cap.
MF Category Dividend Yield Fund; Contra Fund; Value Funds.
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Our Suggestion To Mr. Verma
Allocates Based on the assumption Long term; Expected Inflation - 8%; He is Fairly Insured.
Liquid Fund 20000 Principal money Market Fund (G) or Escorts Liquid Plan (G)
Bank Deposit PNB Housing 50000 For 10 Years.(15% annualized interest)
Debt Fund 50000 for 3 Years (expected return 20%) ICICI Pru Long Term (G)/Franklin Corporate Bond-Direct (G)
Value and Contra Fund 80000 - Religare Invesco Contra Fund.
Now Mr. is a Confident to take the investment Decision and Happy with the choice.
Q & A
BY
SUSHMITHA
SHILPA REDDY
BHARGAVA DATTA
RAMESH