MoneyVedam

KYC is an acronym for “Know your Customer”, a term used for customer identification process. It involves making reasonable efforts to determine true identity and beneficial ownership of accounts, source of funds and the nature of customer’s business. The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering. Compliance with KYC is mandatory for investing in financial instruments. KYC compliance has taken many avatars prior to current state of affairs whereby you need to do a KYC with your bank and another one for investing in capital market products (Mutual funds & Stocks). The KYC done with the bank is sufficient to buy Insurance products as well. However to invest in any capital market products, you need to do a separate KYC. This KYC is valid to invest in Mutual funds (direct or through intermediaries), stock brokers and to avail portfolio management services. To do your KYC, you need to ...

A century ago, most Indians worked in farms or family trades. We produced and consumed for domestic needs (within 5-50kms) and lived well with all products that were available natively - we never had broccoli or oats, but we had several varieties of millets and keerais.  Neither did we have fiat currency (printed paper that states the value of money held / currency that is not backed by gold or silver). All that we used were produced locally and perhaps bartered from nearby locations. Wealth was real and tanglible - in essence, we were free of finance & financial needs. Through the British rule, we imported several things ranging from the english language to western culture to modern industries, a 9-to-6 job, marks-based education, rank-based-selection, a nice designation, fat pay, retirement, insurance, credit, stock market, speculative trading, wealth accumulation and capitalism. The most recent addition to this list is "Financial Freedom". From being financially free ...

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 ...