Tag Archives: Mutual Funds Distributor

Wishes for a Happy Diwali 2017

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Dear Friends,

                            Advance Diwali wishes from team PenguWIN !

Right from my childhood days, Deepavali day has been my favourite day of the year (birthday comes latter) as I used to be deeply obsessed with Crackers. I have even had ideas to open a fireworks shop during Diwali eve, not with money-making motive, but get a chance to visit Sivakasi and buy fireworks at cheap prices so that I get a huge quantity to burst. But till date, it remains an unfulfilled wish.

I am aware that Fireworks cause health hazards, but was unaware of its intensity – Apparently, burning snake tablets is equal (how many boxes is something that was not published and obviously it’s not just 1 tablet or a box containing a dozen tablets) to 475 cigarettes (courtesy NDTV). Fireworks have been banned in many places in NCR (in and around Delhi) and I guess it’s only a matter of time that it ceases to exist for retail consumption.

I would like to brief about a category of equity funds called Equity Savings Fund, which as a concept I am really impressed. The fund category has only a 2-year history and long-term performance is yet to be tested. All major fund houses have launched this fund, starting 3rd quarter of FY 15-16. After the 2014 budget when the Finance Minister changed the taxation of debt funds, all debt funds need to be held for 3 years for indexation benefit and subsequently taxed at 20%. Manufacturers in mutual fund industry (who create new schemes) are extremely savvy and came up with the concept of Equity Savings Fund.

For a fund to be categorized as Equity Fund, it has to have a minimum of 65% exposure to Equity (Stocks) and the balanced fund category is based on this principle, though SEBI continues to say that Balanced Fund should be 50%:50%, Equity and Debt. Meanwhile a separate category of funds called Arbitrage Funds came into existence, where the fund manager tries to identify opportunities of mispricing between cash and futures markets. Without getting too technical, Arbitrage Funds belongs to equity category but potential returns are like debt category (about 5 to 6% ROI now). There is no issue of losses in these funds as purchase and sale of securities are done at the same time.

Using the advantage of Equity for high returns, Debt for stable returns and Arbitrage for Equity tax treatment and stable returns, Equity Savings Fund was conceptualized. They take 1/3rd exposure to Equity, Debt and Arbitrage, with specific schemes taking a little higher or lower proportion of securities. They maintain a minimum of 65% exposure to Equity and Arbitrage so that the fund enjoys equity taxation. From a risk perspective, it’s a lot lower than Balanced Funds giving a comfort feel to investors.

This category of fund, caps both the upside and downside quite well through its composition and has potential to generate 10% to 12% (net of tax) over a 3-year time frame. If this fund category proves its mettle, they will become a great hit among investors who don’t have the appetite for high exposure to Equity and Tolerate Volatility. Balanced Funds have attracted huge inflows in the recent run, higher than any other equity fund category – good returns with reduced risk. Equity Savings Fund could well be the next category to bet on.  

< PenguWIN TITBIT # 103 – Equity Savings Fund>

Who is Right?

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Dear Friends,

                            Navratri wishes to all of you!

In this titbit, I am presenting a real-life case of Life Insurance and leave it open to you for response as who is right!

Mr. Mayur, aged 32, IT professional lives in a newly purchased property along with his wife Shilpa, homemaker and 1-year old daughter Niveda. Mayur has taken a home loan of Rs. 90,00,000/- to be paid over 20 years resulting in a monthly EMI of 84,000/-. He does not have any other assets and both Mayur and Shilpa will not be beneficiaries of any inheritance.

One of Mayur’s colleagues, who knows his background, suggests that Mayur should meet a professional investment advisor and seek his help to plan his finances. In the initial meeting with the advisor (Manish), which was brief and more like an icebreaker session, Manish suggests that Mayur needs to buy a life cover as any contingency to his life will be a huge burden on his family. Based on the evaluation of Mayur’s human life value (HLV) by both Income Replacement and Expenses & Liability approach, Manish determines that Mayur would need a cover of atleast 2 Crores. Manish recommends Mayur to buy a 1 Crore term cover from 2 Life Insurers totalling 2 Crores of Sum Assured (SA). The total premium for 2 Crores sum assured would cost approx. Rs. 20,000/- per year

Mayur feels happy that this insurer is going the extra mile to service him.  The representative from Insurance company 2, meets Mayur and asks him the background of the Insurance requirement. Once he understands the requirement, he makes a different pitch to Mayur. Mayur has anyway bought a 1 Crore term insurance which will not provide him anything in return and the entire money paid to the insurer will go waste. Instead he proposes a ULIP cover with a premium or Rs. 12,000/- per annum that will provide a small SA of 1 Lakhs or the value of the investment, whichever is higher.

He convinces Mayur by showing him different scenarios of the return potential of the ULIP, with 100% equity investment. The Equity market soared that year and the ULIP bought by Mayur attained a value of 16,000/- for an initial investment of 12,000/- Mayur continues to pay for both the Term Cover and ULIP and at the end of 5 years finds the value of his ULIP to be about 1.25 Lakhs while the 10,000/- premium that he pays for the Term Cover has gone down the drain leaving him confused and thinking whether the decision of taking a Term Cover was right.

< PenguWIN TITBIT # 102 – Who is Right?>

HDFC Charity Mutual Fund for Cancer Cure

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Dear Friends,

                      HDFC Mutual Fund has come up with a unique scheme to support needy and underprivileged Cancer Patients by donating the money to Indian Cancer Society (ICS) or other eligible institutions. A total of 3168 patients from 28 states have been benefited through this scheme. A Governing Advisory Council (GAC) meets every fortnight to identify the genuine cases for financial aid

This scheme which is open for investment until 24 Mar 2017 is the 3rd in the series of funds collected by HDFC MF for Cancer Treatment, the earlier 2 being 2011 and 2014. This is closed ended fund for a period of 1136 days and premature exits will not be possible. Typically, when 1 fund house launches a product, its copied by all other fund houses. However, HDFC MF is the only fund house that runs a fund for charity purpose, since 2011. The Scheme offers 2 types of funds for the investors,

HDFC Charity Fund for Cancer Cure

Debt – Income generated through debt/money market instruments and Government Securities

Arbitrage – Income generated through arbitrage opportunities between cash and derivative markets

The minimum investment is 50,000/- and multiples of 1,000/- thereafter.

Now comes the interesting feature of the fund.

The funds collected by HDFC in both the Debt and Arbitrage schemes will be deployed to generate income. The Scheme has only dividend pay-out option and dividends are paid every 6 months, subject to availability of distributable surplus. 

The Investors have 2 options:

50% Dividend Donation Option – Under this Option, Investors can donate 50% of the dividend amount, they earn and the rest shall be paid to them.

100% Dividend Donation OptionUnder this Option, Investors can donate 100% of the dividend amount.

In addition to this, the dividends donated by the investors is eligible for Income Tax deduction as per Sec 80G.  To claim this as a part of IT filing, a certificate with PAN of the investor will be provided.

HDFC MF will not charge any fund management expenses for this scheme and also match the contribution of Investors donation through dividends

At the end of 1136 days the scheme will be closed and the principal will be returned back to the investor.

Dividends paid by debt funds are taxed at 28.4% (Dividend Distribution Tax, DDT) while Arbitrage fund enjoys equity status and hence Tax Free. So, even if is we get a lesser return through Arbitrage, the taxation will make a difference making Arbitrage fund attractive over debt

Most of our clients know that we do not recommend a product that we will not buy and preach only what we practice. So, our contribution is definitely there for this fund.  

<Blog # PenguWIN 1051 – HDFC Charity Mutual Fund for Cancer Cure>