Saturday, March 16, 2013

Three debt fund ideas as an alternative to company and bank fixed deposits


Introduction

The current CPI inflation is at 10.91% as on Feb 2013 end. So we must be making at least around 12% p.a. after taxes and other charges on our principal amount to ensure inflation isn't reducing our purchasing power.

If you have been hunting for a good bank FD that pays better than the current CPI, you will be hard pressed to find it. Most highly rated banks are offering only around 9% with some offering upto 9.25% which after taxes if you are in the highest tax bracket comes closer to 6%. This means your money is actually losing its purchasing power if left in bank fixed deposits.

If most analysts are to be believed it is only going to get worse this year with interest rates headed down (because apparently according to one analyst RBI mostly looks at something called as "core inflation" to determine rate revisions and that is hovering around 3.8% as on Feb 2013 end). If you are in the 30% tax bracket tax-free bonds are one option but those too have lower coupon rates this year than last year and much below the current CPI inflation.

The other option is bank deposits with lower rung banks which are risky OR company deposits which are probably even more riskier -- both carry a high default risk on both prinicipal and interest. Yet another option is bonds or bond funds. Here we review three bond funds that may be suitable as an alternative.

Monday, March 11, 2013

What are Futures and Options and how to gain from it? - Part 1

Introduction

So you are an avid Business channel buff, dabble in the stock market buying shares and mutual funds but haven't probably not ventured deeper into the stock market ocean. If so, you must have always ignored  terms such as "Open Interest", "Long unwinding", "Put-Call-Ratio", "Expiry"  and others so eloquently put forth by your favorite TV anchors. You even think that since you don't dabble in F&O you don't need to know these terms. Wrong. Markets are highly correlated and what happens in spot/cash has a bearing in F&O and vice-versa and you must definitely know what's going on in F&O (even if you don't actually trade there), and understand these terms. In this article, we will examine some F&O terminology explain what they are with examples and then see how we can use them in understanding the trends in the market or a particular share better.

Friday, February 15, 2013

How does margin trading work, the risks, charges and tax treatment in India

Introduction 

Margin trading is very popular with traders and anybody who thinks they can make a fast buck. It allows them to trade (buy/sell) in much larger quantities of the same stock than would be possible normally with cash/stocks in hand. In this article, we will focus on margin trading in shares (and not futures and options which we will discuss another time), the tax treatment of profits and losses, how much you can profit from it after all charges and fees involved, is the dice loaded in your favor or not, and what is the strategy you should adopt to avoid large losses.

Wednesday, February 6, 2013

Everything you wanted to know about your PF/Pension - How does it work? Does it beat inflation? How is interest calculated?

Introduction

There is a sizable chunk of our salaries that each month gets deducted under the head - well PF (Provident Fund). While it may be called just PF, the actual contributions go into two different accounts. The entire employee contributions goto PF whereas the employer's contributions get split between PF and Pension Fund. For most people, PF is the single biggest and probably the only kind of retirement planning they ever do. Whether this is enough or not will be discussed in another article, but basically it would depend on your individual circumstances.