MoneyVedam

What is an annuity? An annuity is a fixed stream of income for a certain defined period of time. Similar to pension, annuities provide regular income stream during retirement years. Annuitization is the process where by you pay a lumpsum accumulated from years of savings in a plan (such as NPS, deferred pension plans etc) to buy an annuity product which would pay out regular cash flows primarily during your retirement years. One who receives such a payout is called the annuitant. There are several variants of annuity plans available depending on your preference for payout tenure, increments desired, continuing payouts for spouse in case of death of annuitant etc. Types of annuity Immediate annuity - pay with lumpsum & start receiving annuity immediately (eg. LIC Jeevan Nidhi) Deferred annuity - a savings plan where you save some amount every year for 5,10,20 years & then start receiving annuity from the deferred date (eg. UTI pension); Annuity certain - receive a fixed ...

Non-Convertible Debentures are debt instruments sought by investors in bonds. These bonds cannot be converted into equity at a later stage and hence the name "non-convertible". These instruments are gaining popularity in the recent 3 years due to higher returns they offer compared to long term bank FDs. Typically infra companies and NBFCs (Non-Banking Financial Companies) issues NCDs. If the cost of raising debt for such companies gets higher or if they have exhausted their existing credit lines, then such companies issue NCDs to raise funds from public. Most of the NCDs issued are secured, but there are also unsecured NCDs - you need to check for this info in each issue. Unsecured NCDs have higher risk than secured NCDs and carry a higher risk premium. Features Debt is "secured" against assets of the issuer (for Secured NCDs) Liquid instrument as it is traded in secondary markets Suited for medium tenure of 3 to 6 years Need demat account to purchase NCDs a...

This is the latest product launched by RBI in an effort to wean retail investors away from physical assets to financial assets. Since inflation has been a record high in the recent 5 years, Indian investors have been shifting to gold and real estate to protect their savings from inflation. This has dented our current account deficit quite significantly in the last two fiscals. Inflation Indexed National Savings Scheme - Cumulative (IINSS-C) is an alternative to physical assets (gold & property) to motivate retail investors to save in an asset that provides "real rate of returns", one that does not get eroded by inflation. How does it work? Typically a fixed interest is paid on a bond (called coupon). A Rs.1000 bond that pays 8% interest p.a looks good but if inflation (as measured by CPI) is 10%, your real rate of return is negative. In the case of IINSS-C, the interest is the sum of a fixed interest (1.5%) and CPI (consumer price index) of the preceding 3 months, com...

These are closed ended mutual funds that predominantly invest in debt instruments. They can be subscribed through the NFO (New Fund Offer) and redeemed only upon maturity. They are relatively stable and specify in the Scheme Offer Document (SOD) the category of debt instruments in which the fund manager would place your funds. They have gained popularity in the recent 2-3 years due to high yields in Indian bond market. Their tax efficient nature makes them a preferable choice when compared to liquid/debt funds. The only disadvantage is that the funds are illiquid for the entire tenure of the fund. Taxation of FMPs Fund houses issue FMPs with fixed tenure such as 370 days, 500days or 730days. As the tenure is more than 365days / 1year, these securities qualify as long term investments and hence could avail a lower capital gain tax. Long term capital gain tax for FMPs is the lower of 10% without indexation or 20% with indexation benefit. Due to the indexation benefit, the tax realize...

These are long term bonds that provides tax free returns to the investor. This financial instrument falls under fixed income asset class that is issued almost every year by select institutions with the approval of government of India. These bonds carry relatively stable ratings and are considered to be sovereign bonds due to the covering of default risks by government of India. Who issues these bonds? In the previous two fiscal years, the total issue of tax free bonds were about Rs.25,000 to Rs.30,000 crores. For the current fiscal (FY13-14), the approved total sum of such tax free bond issues is Rs.50,000 crores. As the government is fighting the twin deficit of CAD (Current Account Deficit) and Fiscal deficit this year (FY13-14), several institutions such as PFC, REC, IIFCL, NHPC, HUDCO, NHB, NTPC, IRFC, Ennore Ports, Airport Authority of India and Cochin Shipyard Ltd have been granted the approval to issue tax free bonds. What is the nature of the bond? Long term - 10, 15 and 20 ...

Over a 10-15 years time, a working adult typically purchases a variety of policies from his insurance agent. However buying too many insurance policies at different points in one's life for a short term objective (eg.tax saving for 80c) without having a long term goal would only leave you with a mixed portfolio of policies with different premium paying terms, different maturity amounts, maturing at different times. Also most people do not realize that even after putting together all their policies they are under-covered with respect to their life - this is simply because they were not sold the right policies in the first place (most insurance agents sell endowment and moneyback policies as they are earn high commissions on them). The classic conflict.. The objective of insurance is to provide compensation for loss and no more than that. Whereas the objective of investment is to provide the best returns commensurate with risks undertaken. As you could see these two products are ...

Most people start buying insurance policy as a means to buy life cover, as small savings and to avail tax benefits. Some others buy children policy, joint-life policy and health insurance. Those who have a home loan would get a home loan cover for the outstanding loan amount. These days getting a health cover is more prevalant. Pension plans and annuities too have gained popularity in recent times. Infact a good majority of the 400 million Indian urbanites have bought some form of insurance or the other (apart from the mandatory motor insurance). So, why do we buy insurance? There is widespread belief among us that the sum assured in a policy means premiums paid are returned with assurance. In a way it is ingrained in our minds that insurance is some form of a "capital-protected" investment compared to other financial products such as mutual funds or equities. And given how religiously the Indian middle class pays their premiums over the last 30 years, insurers have been ...