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How does a Financial Advisor add value to your Financial Future?

The power of good financial advice is often underestimated in today’s quick -‘n’- easy- money attitude driven world. It is also surprising to see that a large number of financial advisors find it difficult to communicate the value they add to the client’s financial well-being and security.

Importance of a Financial Advisor

Most often they function like agents enabling the client pick funds or stocks that promise growth and returns based on a performance record. This very act trivializes a financial advisor’s services and reduces them to mere selling agents of a different kind. You may even find a lot of disillusionment among financial advisors as they try to predict markets. Any market position has them dissatisfied and they complain about not capitalizing on the market’s upturn or feel apologetic for not avoiding the downturn. When the market is just plain stagnant, they are frustrated. Clearly, not the way a financial advisor must feel about the profession or the environment in which they have to perform.

A financial advisor’s work for an investor must depend on these three important elements:

Right Expectation

Right Execution

Right Priorities

Managing these elements well also depends investor behavior to an extent. Sometimes the money management business even for the mega –rich can become a failure. When an investor decides to trade too often and at the wrong times and into the wrong instruments they turn it all upside down for them and for the financial advisor. Not being able to arrive at one success formula that will guarantee the achievement of the client’s investment goals can be a big reason why financial advisors find it difficult to substantiate their value. And advisors seek to eradicate or balance this by putting out evidence –based or data driven approach as they feel it would appeal to the client.

However, an advisor’s priorities begin with recognizing …..

The IMPORTANT and the ACHIEVABLE.
It begins with the financial advisor placing the client’s interests first even when the client is not able to see it.
It begins with the advisor communicating this to the client well and clear even before the financial or investment strategy is made.

How does a Financial Advisor add value?

A financial advisor whose focus is only to help the investor pick out investments, will find it extremely difficult to add value. Alternately, the advisor can add immense value when a comprehensive financial planning is provided. A comprehensive financial planning goes well beyond just choosing investments.

Let us put it this way… A financial planner can increase and protect wealth, and smoothen consumption. And that is the benefit of financial advice in short. Breaking it down further, see below how the financial advisor is able to add value.

The Financial Advisor adds value by:

Encouraging consistent Savings:

Many investors often forget that saving is the first step to wealth creation. The origin of all investment is saving. Starting early and keeping it consistent will have the investor garner the power of compound interest. However, most of us fret over tweaking our investment portfolio a little more or worry over asset allocation rather than thinking about saving an extra 2-3%. Educating the investor on the importance of steady and increased savings is a great value the financial advisor can offer.

Encouraging consistent Investment:

Market volatility or draw-down risk is the price an investor pays for the higher expected return on equity. Keeping composure during difficult market times does not go unrewarded. We have a number of studies to prove to us that investors who trade the most have the lowest return rate. Going by Pascal’s wisdom…. “All human evil comes from a single cause, man’s ability to sit still in a room” A financial advisor is not someone who just leads an investor to a winning strategy but is able to make the investor sit through and stick to it when the going gets tough.

Also Read: Are Real Estate Returns hyped over Equity?

A financial advisor adds value by preventing the investor from making an instinctive decision every time the market takes a downturn, especially when the investor wants to sell at that point in time. This happens only when the financial advisor is able to interpret to the client the importance of “time in the market” and not timing the market.

Financial Planning:

A financial advisor adds value to the financial health of an investor by enabling the investor to arrive at appropriate, realistic and manageable goals. A comprehensive financial planning goes a long way in assuring good financial health. Financial planning is broader and involves more than just planning or picking out investments. It involves tax planning, granular and broad risk management, budgeting, life and health insurance planning, lifestyle management planning, asset allocation, retirement and legacy planning and above all the prevention and management of a financial crisis.

In short a financial advisor helps an individual to formulate, adjust, monitor and achieve personal and financial goals. And this can be called the real value or expertise of a financial advisor. Arriving at the right priorities, managing emotions and expectations and executing the strategy may look conceptually easy but monumentally difficult in practice. A good financial advisor add value to the financial well-being of an investor at every point and action taken, and a great deal of it.

This article has been contributed by K.N. Sridharan, CEO WinRich

Are Real Estate Returns hyped over Equity?

Understanding returns from Real Estate Investments

Sentiment holds Investment in Real Estate very high in India. It is everyone’s dream and ambition in India to own real estate. By real estate we mean a home or investing in a second home. While it is well-known that Gold and Real Estate are the much preferred asset classes, (types of asset) the Indian market has also looked favorably upon Insurance and now investment in Equity to an extent.

Real Estate Returns vs Equity Returns

However, Real Estate is still the much preferred investment choice. You may ask what choice has to do with returns. Yes. Choice and Preference have a great influence on returns and on its perception. Search the internet and you will find loads of information about how people have booked losses by investing in equity and equity funds, but hardly any on real estate losses. Why is it so? Why do we have a great return experience in when it comes to real estate and not so in equity or any other investment?

Investing when markets peak and exiting when low

Over the last 5 to 10 year period equity funds delivered a 10% CAGR (Compounded Annual Growth Rate) in a worst case scenario and a 20% when best. All that an investor had to do was to simply buy and hold on to it. But sadly, most people have not made this return mainly because they wanted to time the exiting of an equity fund. They did not wait for the best time to exit.

Whenever there is a downturn in the market, they not only struggle to keep up to their commitments on the SIP investment, they are also tempted to pull out fearing a further fall. Investing when markets are peaking and exiting when low is possibly the worst thing to do when it comes to equity funds. Opportunistic investment is not the route to returns.

Also Read: Risk Profiling is a Revelation – The sooner the better

If the investor does the same thing in real estate he is bound to make losses. But truth is hard. They do the exact opposite in real estate. People buy real estate when they have the need. Especially when there is a strong need to own a home. And when they want to sell and see a general slump in the markets they hold on to it till they get a better price. Another reason for investors to be tempted to pull out or sell equity funds is because of the transparency factor. The returns, appreciation or depreciation can be tracked on a daily basis. Returns on real estate can be tracked only when realized.

Wrong Comparison: A 100% return. But what is the timeline? What is the CAGR?

Before we actually venture into calculating returns, let us understand the right way to measure returns. A CAGR is a measure that indicates the average rate of return over a period of time. Usually for consecutive years. If you want to track the average growth of return over of a single investment over a period of time then the CAGR is the measure you must use. It is a simple metric which can be mathematically represented as below:

Real Estate CAGR Calculation

Let’s decode this to simple terms. If Anish invested INR 1,00,000/- in a portfolio on Jan 1^st 2010 it is of no surprise that the rate at which the portfolio grows would be inconsistent. His portfolio grew to 1,30,000/- in Jan 2011 and to 1,40,000/- in Jan 2012. It spiked to 1,95,000/- by Jan 2013.

To find the CAGR we will have to divide the final value of the portfolio by the initial value of the portfolio which is (195000/10000 = 1.95) . We will then raise this result to the power of one and divide it by the number of years which is 3.

[(195000/100000)ᶺ (1/3)] – 1

=[1.95 ᶺ 0.3333) – 1

= 1.249 – 1

= 24.93%

Thus Anish’s Compounded Annual Growth Rate is 24.93%. This is the annualized gain of Anish’s portfolio over a 3 year time period. Well, if this is the measure we use for one investment class it is only prudent and just, that we use the same measure for all investment classes. Let’s do the same for the home that Anish bought. He invested 40,000 a month for a period of 15 years to own a home which would make the cost of his home INR 72,00,000/- (the amount is inclusive of both interest and principal repaid on the home loan) If the value of the home became INR 2 crores by the end of 15 years it does make a huge difference in Anish’s wealth. However, the CAGR would work out to a paltry 7.04%. If an equity fund were to yield this much people would definitely consider it a loser!

Real estate returns are high because of the high investment and longer commitment periods. It is highly unlikely that someone would take a loan for an SIP. (which is also not the right thing to do). Comparing absolute returns and returns over different time periods are also not wise things to do. An investment that stays in the market for a period of 15 years is definitely bound to give better returns. The only difference an investment in real estate would make is the ‘need’ and ‘utility’ quotient.

To know more about measuring the growth of your investments visit a financial advisor today!

This article has been contributed by K.N. Sridharan, CEO WinRich

Risk Profiling is a Revelation – The sooner the better.

Ever wondered about your ‘risk appetite’ or the amount of risk you can take with all your money? ‘Risk appetite’ and ‘risk profile’ are not phrases or terms that are best left to the knowledge of the financial advisor. It is imperative for an investor to know about his/her risk profile and the validity of the risk they are exposed to especially when it comes to investing in equity.

Risk Profiling Essntial

“Mutual funds are subject to market risk. Please read the offer documents carefully before investing” These lines are a statutory requirement that every mutual fund offering financial company must communicate orally or in writing when selling or advertising their funds and schemes. It is so only to educate the investor about the innate risk of these investment instruments. An individual’s readiness for risk or recovery when exposed to a risk, depends on a variety of factors.

Risk profiling is the method or process of arriving at the optimal level of risk an investor can take, after considering the risk required to achieve the returns, the maximum risk the investor can take, and the risk the investor is comfortable with.

Remember Risk Profiling is done by the investment advisor before arriving at an investment strategy for the investor. Every investment made from then on is based on the investment strategy. An investor’s risk profile is calculated using a financial planning tool or software.

Risk Profiling Understand

To understand the different aspects of risk profiling a little better, let’s see it with Sudharshan’s risk profile. Sudharshan is a Senior Sales Manager in a Telecom company based in Chennai. When he approached a financial advisor regarding his investment plans, his advisor discussed with him his financial goals and all that he intends to do with his earnings and savings. After clearly laying out his financial goals and commitments, his financial advisor comes up with an ‘X’ figure which will enable him achieve all his financial goals. Now this ‘X’ figure is subject to Sudharshan willing to part with some of his saving along with a significant risk exposure ‘Y’.

Also Read: Insurance – You pay to cover for the Risk. Not for a Return.

This significant risk exposure ‘Y’ to achieve Sudharshan’s financial goals is the ‘risk required’’Y’. However, Sudharshan’s financial advisor speaks to him and educates him about his ‘risk capacity’ ‘Z’ or how much he can afford to risk in order to achieve the expected return. Sudharshan can now communicate the risk he is comfortable to take. Also called as ‘risk tolerance’ – ‘A’. This can be lower or higher than ‘Y’ In other words, ‘A’ is the call that Sudharshan makes after knowing ‘X’ and ‘Y’.

So what is the financial planning software doing after all? The software will give the optimal risk that Sudharshan can take. To put it precisely, the software gives a mid-way that will get the Sudharshan closer to his goals without exposing him to too much of risk.

What are the benefits of Risk Profiling?

Introspection into your current and future financial position: Many a time we are unable to judge our financial position, earnings and assets. A risk profiling exercise puts things in the right perspective and enables the investor enjoy his earnings apart from comforting with a sense of financial security.

Gives an idea of the expected returns or the wealth you can create: Risk profiling will involve the exercise of you listing your financial goals and making a list of all our savings and assets. This will give you an idea of how much your savings and assets would be worth in the future.

Prepares you better for life’s uncertainties: When an investor’s risk profiling is done, it will shed a lot of light upon the amount of funds that must be allocated or set aside to meet contingencies or emergencies. In a way it prepares the investor better.

It is the first step to wealth creation: Knowing your financial worth and the risk you can take to accumulate wealth or make returns on your investment is the first step an investor takes to wealth creation. This way the investor works on a well-defined investment strategy to reach financial goals which works most of the time.

Call upon your financial adviser today to get risk profiling done. It’s the best way to begin your journey to creating and keeping wealth.

This article has been contributed by K.N. Sridharan, CEO WinRich

Insurance – You pay to cover for the Risk. Not for a Return.

Ask a prudent financial advisor about the things that can guarantee some financial security in the event of life’s uncertainty, and he would blurt out the phrases Term Insurance and Medical Insurance, loud and clear! Well there are no other opinions on this one, especially when it comes to giving the family of the common man; the salaried class and the sole bread winner of the family – Financial Security.

Insurance Cover

The Indian family structure leans a lot towards the single bread – winner style although times are now changing as we see a steep increase in the earning status of the women in the family. If it is ‘risk’ that we mean to protect ourselves against, then the conventional Life Insurance policy or the Term Insurance policy is the one to opt for.

A Term Insurance policy guarantees a pay-out to the beneficiaries, if the insured dies during the specified term. Let us assume, that if Mr. Subramaniam took a term insurance policy for a sum assured of INR 72,00,000/- he will just pay a single premium of a little over INR 5,00,000/- for a 21 year tenure. Please remember that Mr. Subramaniam is insuring his life and the event of his death any time during the 21 year tenure would have the insurance company pay his beneficiaries an amount of INR 72,00,000/- Mr. Subramaniam will not receive any pay – out if he survives the term. (Note that the premium and sum assured are calculated based on the individual’s current earnings and age which is the standard norm for all term insurance policies)

It’s that simple. It is the most effective and cheapest life cover that salvages the loss of income if the bread – winner or the earning member of the family dies prematurely.

Why is a Term Insurance essential?

If you think “I won’t get anything back if I take a term Insurance” you’ve completely misunderstood the very purpose of Term Insurance. Well, if you want to get something back while you are alive it is clearly an investment from which you are expecting returns. Like the whole life insurance plan where you get an assured sum with a significant interest along with a death benefit. But expect to pay a premium way higher than that of a Term Insurance.

A Term Insurance premium is the cheapest because you are securing the future of your family against an evitable risk and there are no returns if the risk does not occur during the term. Buying a term insurance makes sense only when an individual is in the prime or working years of his/her life as the family would find it difficult to replace the lost income. Moreover, term insurance premiums are also eligible for an income tax exemption under Sec 80 [c] and Sec [10] of the Income tax Act of 1961.

Health at Risk is Wealth at Risk

If ‘life’ is a risk, ‘health’ too poses an equal amount of risk. An accident or illness can paralyze the earning capacity of an individual. This will also lead to an increase in healthcare expenditure. Archana is a single mother with a 10 year old son and a 55 year old mother. She works as a receptionist in a leading telecom company. Her company is generous on benefits and she has a medi – claim policy which covers hospitalization expenses in the event of an unforeseen illness or accident. This benefit extends to her dependents too and she has her mother and her son listed as dependents.

Archana’s mother accidentally fractured her leg while climbing down the stairs. She was admitted in the hospital for two weeks and is now home but with almost zero mobility. Archana is struggling with her mother’s OPD care, medicine supplies and assistance care and it was then that she realized she could have signed up for the Extra Care Health Insurance package from a representative who approached her almost a year ago.

Also Read: Investment Indians make and are they really worth it?

Rising healthcare expenses leave us with no choice but to opt for additional Medical Insurance. Managing healthcare expenditure during times like that of Archana’s is a herculean task especially when she is the sole earning member of the family. A Medical Insurance Policy is a must and should be based on the health profile of the family and the earning capacity of the family. Archana’s financial condition could have been worse if not for the Hospitalization benefit she receives from her company.

Both loss to life and loss of health due to illness or accidents are inevitable and covering ourselves adequately through insurance policies are the wisest decisions we can make. All that we need to understand about these policies are their very purpose and how they would prove useful to us during the time of crisis.

While a term insurance premium is calculated based on your current income, age and tobacco habits a prudent financial advisor will do a careful assessment of your earnings, financial responsibilities and risk profile before suggesting the right medical insurance for you.

This article has been contributed by K.N. Sridharan, CEO WinRich

Investment Indians make and are they really worth it?

Investment in traditional assets and changing landscape

India is a land of savers. A lot of Indians compromise on their lifestyle today in order to have a secure future. Ask why? And the ‘saving’ Indian’s answer would invariably be… “For a secure future”. Indians save by buying gold, real estate and the urban class bank their savings in FDs. These are common man facts but let’s leave no doubt or offer space for dispute. According to a report published by Karvy Private Wealth for the financial year ended March 2015, Indians’ Investment in Gold tops the charts with 57.15 lakh crore, Real Estate coming in second at 52.85 lakh crore, Investment in Direct Equity at 34.39lakh crore and investment in FDs extremely close at 33.39 lakh crore.

Investment Indians make and are they really worth it?

Indians look at owning the roof over their heads as an undeniable necessity. While the rest of the world cheers “Go for Gold” this year and this season at Rio, Indians literally ‘go for gold’ every other season and every other year. The spike in Direct Equity Investments scoring a little higher over FD’s is commented by the research company as a trend reversal. Experts also say that the Indian Investment scenario is changing with investors opting for Equity and Mutual funds over Physical assets like Gold or Real Estate.

However, too much of investment in Physical Assets (assets that you can feel and touch) like Gold and Real estate is always a problem and is associated with liquidity and maintenance issues. Let us take a look at the pros and cons of owning these assets.

Gold:

The most common form of buying gold is as jewellery, where the buyer pays high on making charges and wastage which leads to a deduction anywhere between 8-30% when he wants to sell the gold to realize its value.
Bank coins are also charged a 5-10% premium and are not bought back by the banks
Gold does not give any current income, the investor will only be able to realize its value on sale.
Although gold has fared well historically, absolute returns are at a bleak 0.8 % above inflation.
Jewellery can never be considered as an investment it only symbolizes wealth and an expense for pleasure.
However gold scores high on Liquidity.
Gold is taxed as a capital gain. It has no other tax benefits as well.

Investment in gold is worth it, just not as a jewel. We prefer to keep about 5% of our assets in gold just to take care of any unforeseen emergencies or financial crisis.

Real Estate:

Aravindhakshan is stuck with his investments. In his early forties, he has not one but three flats and all of which are on an EMI. The lure of securing loans easily has pushed him to create physical assets in this real-estate crazy investment market. He has an unexplained apprehension when it comes to assets that he cannot see and feels very strongly about creating wealth by owning physical assets especially real estate. He stays in one and has rented another.

But it is the third one that stresses him completely. It is lying vacant for more than a year, and the EMI has left him with little or no option to invest in any other plans that offer periodic returns or a better liquidity. He has been thinking long and hard about selling it, but a sale now would only render a loss due the interest he’s paid on the home loan. Right now all that Aravind can focus is that the asset is not earning him any interest.

Real estate has always been the first choice of investment for the Indian. Rising costs, purse pinching EMI’s that leave little or no money for expenditure, and maintenance costs ring the warning bells when it comes to putting all the money on real estate. Moreover, real estate scores extremely low on liquidity. A great asset for keeps and planned realization, real estate is high on appreciation.

Fixed Deposit:

Nalini Viswanathan had a small saving of INR 1 lac. She works for a private firm as a secretary to the CEO and wanted to invest the money for returns. She is extremely sensitive when it comes to safeguarding her principal and put the money in an FD. At an 8% interest rate the interest received would be INR 8000/- . Note that interest in FD is taxable and a 30% tax would make the interest INR 5600/- which is a meagre 5.6%. FDs are great for security but definitely not for returns.

Therefore, the average Indian is now looking more at direct equity investments, bonds, mutual funds and other return based financial assets because of education, awareness and growing consumerism that expects the individual to maintain a fat purse at all times. Too much of any physical asset presents challenges in liquidity, appreciation or returns which is definitely not a wise way of dealing with finances.

This article has been contributed by K.N. Sridharan, CEO WinRich

Are you Investing based on your Goals?

Saving and investing for a goal makes it more likely that you will achieve the goal. Time and risk are two important things that determine the nature of your investments. As a retail investor (by retail investor we mean an individual who invests for the purpose of wealth creation or fallback funds for unforeseen expenses) when you start putting money into the market ask yourself this important question. What is the purpose of your saving or investing?

Are you Investing based on your Goals?

It is an essential self-inquiry that you must do, simply because you are cutting back on expense now to save for the future or to enjoy a financially better-off future. A sacrifice that has to be 100% purposeful. It simply means that the benefits of the investment must outweigh the pleasure of spending today.

There are two important principles that you must stick to when it comes to saving and investing.

Re-balancing expenses in order to not lose sight of the present life and yet save and invest enough for a secure future.
Investing well to create wealth that will enable you allocate money for the different goals based on your priority.

Let’s take a macro view of the possible goals and investment options of an average 33 year – old committed individual.

Sukumar is an Operations Manager in a Multinational Oil and Gas Company. He enjoys a number of benefits from his company which covers his health insurance and that of his family. His pay package has a tax friendly structure allowing him maximum tax deductions under the different headings. However, he is concerned about rising education expenses and wants to save for his son’s overseas educational expenditure.

He must look at not just saving for this goal but also in investing it well enough and reap returns that will add up to a decent sum enabling him achieve the goal. Assuming that Sukumar has other goals like planning Retirement funds, Safety funds (to help him during unforeseen medical expenditure and during times of other emergencies), and creating assets for himself eg: buying a home. It will definitely be a difficult thing for Sukumar to cut out a portion of his income and save only for his son’s overseas education. However, if that is on his list of priorities and is willing to stick to a disciplined schedule, Sukumar can look at equity options which can help him achieve this specific goal.

With time in his favour, Sukumar can start early and invest in equity. SIP the Systematic Investment Plan would be great way to ensure safety, returns and liquidity for his investments. With an investment of INR 10,000/- per month, he can expect to have 8.5 lakhs at the end of 5 years and 16.5 lakhs at the end of 8 years at a 12% interest rate. This 12% is a conservative interest rate. SIPs deliver an average 16-17% per annum. Sukumar would have a handsome amount at the end of his investment period which will enable him make better decisions about his son’s overseas education.

Tracking Index returns

Time is a big factor when it comes investment. Equity investments get bigger and better with time. Staying invested or continuously honoring the commitment is the key to making desired returns. Alternatively, if Sukumar can also get the advice of a financial consultant or advisor, who can ascertain his goals and risk appetite, Sukumar can invest in the market. Picking out the right stocks or commodities to create a portfolio, he can use the help of his advisor to make returns on the index. (by index we mean a group stocks that you have chosen to track)

Your investment advisor would advise you to create a diversified portfolio by picking on a mix of stocks that can perform and protect capital. It is important for you to look at the performance of the index and not a particular stock. Again, staying invested is key to reaping returns. With time in his favour, Sukumar can really work with his financial advisor and create a portfolio that can reap more than average returns. A periodic analysis (a 6 month at the least) of his portfolio with his advisor is important and recommended. Stock markets rally with sentiment and react to even the slightest changes in policy.

Peer Pressure for Investing

Retail investors like Sukumar who have time in their favor must be prudent enough to not be influenced by peer pressure. He was introduced to the investment advisor by his colleague Prakash who trades online if not daily but on a regular basis. Prakash watches out for mid-cap stocks that rally and has wide circle of friends who also day trade. He logs – in to his trading account at 9.30 am sharp to see the how the markets have opened.

Prakash often talks about the profits he booked and the stocks he traded, on the day he makes a profit, luring other colleagues to take the same route. The truth is nobody knows Prakash’s initial investment into the stock market, his goals, his motive behind day trading and his cumulative returns or the growth of his investment. The only way to not give in to peer pressure is to stay focused on the investment goal and the strategy behind it.

Wealth creation happens only when money saved is well –invested to give you optimal returns. It is wealth creation first. Allocation of it for goals, comes second. Investments are all about Appreciation, Returns and Liquidity. So list your goals and let the investment advisor do the rest for you. Sukumar can also look at investing in Gold and Real estate. It takes a prudent investment advisor to design the right investment portfolio for Sukumar.

This article has been contributed by K.N. Sridharan, CEO WinRich

Meetings through Video Conferencing

Dear Client,

Subject: Meeting through video conferencing

We are pleased to inform you that we have introduced a video chat facility for all our investors to interact with us. This should be a great tool for keeping in touch with us and is expected to save a lot of commute time. The details of how to use the facility is given below. As of now, you will be able to video conference only with me. Based on your feedback, we can extend this facility to our support team later.

This facility, when used effectively, will save a lot of commute time and render a higher quality on the review process.

Registration set up for video conferencing (one time activity)

Go to website : www.craniumcafe.com

Click on register at the top right hand side of the landing page, and then click register here →. Complete your registration by providing a user ID, a password and a reference mail ID (to receive the link to complete the registration process).

A mail containing a link will be sent to your declared mail ID. Click on the link to complete and confirm the registration process.

With this, the registration is completed.

Using Video Conferencing facility

Go to WinRich’s website www.winrich.in in a new tab sheet

Please click on Book Appointment

If I am available it will show a green dot on the box. Then Click on “Knock the door”, It will get connected.

Click on Allow webcam and audio

If you have a head phone, audio will be clearer, otherwise, it is clearly audible.

I request you to kindly embrace this technology. Whenever we seek a meeting with you, we will try video conferencing, and then schedule a face to face meeting, if necessary.

I will insist on you joining us in this facility, which may accommodate more frequent reviews instead of the present once-in-six-months schedule.

Please do not hesitate to revert to me, if you encounter any difficulties in using this technology.

Thanks

KN Sridharan

Contact Information Updated

Dear Client,

Subject : Change in our email IDs.

To serve you better and to focus on individual businesses with sharpened responsibilities, we have created the following email IDs in lieu of the existing mail IDs

The following newly created mail IDs may be used for the intended purpose from now on.

General purpose mails: knsridharan@winrich.in – K N Sridharan
Advisory Services: advisory@winrich.in
Direct Equity related: directequity@winrich.in – Rajani Prakash
Mutual Fund Distribution: mfdistribution@winrich.in – Kokila
ITR Filing related (1): taxation_advisory@winrich.in – Baskar P
ITR Filing related (2): taxation_advisory1@winrich.in – K B Balakumar
Escalation/Resolution of issues: complaiance@winrich.in, knsridharan@winrich.in

This may appear a little difficult to remember. But the IDs are structured in such a way that the first part refers to the function or service desired and the second part is always @winrich.in . We seek your co-operation in this change over, and request all of you to register these mail IDs and start using them right away.

All the old email IDs stand deactivated with immediate effect.

Thanks

K N Sridharan

Liquid Funds – A Versatile Investment Scheme

All you wanted to know about Liquid Funds

Even though it is more than two years since the Reserve Bank of India deregulated interest rates on savings deposits, most banks still offer around 4%. Some banks offer higher interest rates on savings accounts but ask for a higher minimum deposit. Still, we park a significant proportion of our spare cash in these low-yielding savings accounts, earning much lower rates than the inflation rate.

Liquid funds can help earn much higher rates than what the savings deposits offer without compromising too much on how quickly we can get back our cash.

What is Liquid Fund?

Liquid fund is a category of mutual fund which invests primarily in money market instruments like certificate of deposits, treasury bills, commercial papers and term deposits instead of equity or stock markets like NSE or BSE. To ensure high degree of liquidity as well as to minimize volatility, liquid funds invest in securities that have a residual maturity of less than or equal to 91 days.

Benefits of Liquid Funds

Liquid funds have no lock-in period. These funds have the lowest interest rate risk among debt funds as they primarily invest in fixed income securities with short maturity.

Considering that liquid funds are ideally suited for investments that may be required to be redeemed at a short notice, most of the funds in this category do not have any exit load.

Withdrawals from liquid funds are processed within 24 hours, with a cut-off time generally 2 p.m. on business days. It means if you place a redemption request by 2 p.m. on a business day, then the funds will be credited to your bank account by the morning of next business day.

Returns from Liquid Funds

Liquid funds are among the best investment options for the short term during a high inflation environment. During high inflationary period, the Reserve Bank typically keeps interest rates high and tightens liquidity, helping liquid funds to earn good returns

The dividend received in the hands of the investor is tax free, as liquid funds are required to pay dividend distribution tax.

How to choose a Liquid Fund

The returns from liquid funds don’t vary much as they invest in similar underlying securities. However, when looking for a liquid fund, the past return should not be the only factor for consideration. Other factors like size of the fund, credit quality of underlying securities and track record of the fund house should also be kept in mind. Some of the available liquid funds are HDFC, Reliance.

Although liquid funds are a safe option for investors from the point of view of volatility and risk of losing capital, it is important to invest in them for the right time horizon so that one doesn’t suffer from opportunity loss. For example, an investment in a liquid fund with a longer term horizon of say one year or more may result in an investor compromising his chances of earning higher returns through options such as short term income funds and FMPs.

Attractive alternative to savings deposits

Liquid funds score over traditional investment options like savings bank account and short term fixed deposits as they have the potential to provide higher returns. However, one must choose the right option out of the ones offered by mutual funds like dividend payout, dividend re-investment and growth to enhance post tax returns. They offer attractive returns on funds parked over short durations.

Different Plans

Liquid funds come with different plans like growth plans, daily dividend plan, weekly dividend plans and monthly dividend plans. Growth plans don’t declare any dividend, and appreciation of fund is reflected in higher unit value

Investors can choose their plan as per their convenience and liquidity needs. Retail investors can also invest in direct plans as they have a lower expense ratio which helps in getting a higher return

Taxation

Individual investors who book gains before three years on their investment in liquid funds are taxed at the same rate as per their income slabs. Interest earned from savings accounts are also taxed at this same rate

Redemption beyond three years attracts a long-term capital gains tax of 11.33% (including cess and surcharge) or 22.66% with indexation benefit, whichever is lower. This helps in reducing tax outgo for those in higher income tax slabs. Earnings from savings accounts or banks fixed deposits are clubbed to one’s income and are taxed at respective slabs

Finally

Investors may have their own personal yardstick for the returns that they get from savings account or short term FDs. Despite having an edge over traditional investment options, the retail participation in liquid funds is still very low. That’s because they find putting money into savings account convenient. Besides, lack of awareness about liquid funds also makes investors vary of investing in these funds. Many investors tend to keep a sizeable balance in their savings bank accounts, and that too for prolonged periods. But, today, an investor can make investments online enhancing the convenience. It’s time for them to turn their attention to short term investments too and embrace options like liquid funds to enhance returns. Remember, liquid funds are the best and easy option to keep excess balance for a short duration, as they offer attractive returns.