[Habanero City]

Originally Posted by Simhi

We are at the bottom of the interest rate cycle and interest rate are likely to inch upwards going forward. In such scenarios, long term debt funds, including gilt funds, will continue to be volatile and even give negative returns. Please invest in these funds only if your investment horizon is 5 to 7 years else better to invest in short duration funds.

Originally Posted by graaja

Gilt funds have volatility based on interest rates. They give higher returns when interest rates go down and returns are low when interest rates are steady or rising. Gilt funds should be chosen only if your investment horizon is 5 to 7 years. In that horizon, you can expect good returns - 7 to 10% based on past performance. If you are looking to keep the funds for lower duration, then you should consider low duration funds, liquid funds or overnight funds.

Thank you very much for the clarification.
I am not familiar with the bond yield, interest rates etc., and their effect on these funds.

Hence I have redeemed them and planning to stick with the schemes in which I understand the risks and rewards.
Thanks for the guidance.

[Maverick Avi]

Amongst liquid funds I see that most of them have been categorized as Moderate under Scheme Riskometer. I remember them being as low when I invested some 1.5 years back. Is Franklin fiasco to blame for this?

Also wanted to know whether some Liquid schemes marked as Low to Moderate under riskometer would actually be less risky that the Moderate ones? I see that Nippon, LIC, Quantum etc categorized under Low to moderate risk and was thinking of parking some funds under them. But unless these are actually less prone to risks I would be happy to invest in the the likes of HDFC, ICICI etc which have large AUMs(as suggested in prior posts).

[SmartCat]

Originally Posted by Maverick Avi

Amongst liquid funds I see that most of them have been categorized as Moderate under Scheme Riskometer. I remember them being as low when I invested some 1.5 years back. Is Franklin fiasco to blame for this?

New riskometer norms, not Franklin fiasco.

Also wanted to know whether some Liquid schemes marked as Low to Moderate under riskometer would actually be less risky that the Moderate ones? I see that Nippon, LIC, Quantum etc categorized under Low to moderate risk and was thinking of parking some funds under them. But unless these are actually less prone to risks I would be happy to invest in the the likes of HDFC, ICICI etc which have large AUMs(as suggested in prior posts).

Yep, liquid funds that are categorized as 'Low' risk is actually less risky than those placed under 'Moderate' risk category. Low risk liquid funds seem to have higher than average allocation towards RBI treasury bills (no default risk).

Eg: Quantum liquid fund has 79% allocation towards RBI treasury bills (depicted as SOV by valueresearchonline)
https://www.valueresearchonline.com/...-regular-plan/



ICICI Liquid fund has just 25% allocation towards RBI treasury bills
https://www.valueresearchonline.com/...l-liquid-fund/

[Ragul]

Folks
I am not finance-saavy so I'd like an opinion from others.

Q1.Are Balanced Advantage funds safer than regular MF? For a person with only moderate risk-appetite is it safer than other investment options?
Q2. Would you recommend parking funds for old age in endowment policies like Exide Life Assured Gain Plus for single individuals not requiring insurance cover because he has no dependents?

Thanks

[graaja]

Originally Posted by Ragul

Q1.Are Balanced Advantage funds safer than regular MF? For a person with only moderate risk-appetite is it safer than other investment options?
Q2. Would you recommend parking funds for old age in endowment policies like Exide Life Assured Gain Plus for single individuals not requiring insurance cover because he has no dependents?

A1: I don't think balanced advantage funds are safer than regular MF. During the last market crash, the holdings I had in SBI Equity Hybrid fund saw the same level of crash similar to pure equity funds. If you want to compensate for the market falls, best approach would be to fix an equity-debt fund ratio and invest in pure equity and pure debt category funds.

A2: Please avoid. This has been discussed a lot before. Most of the endowment policies are scams with very low returns (5% to 6%), but with lots of penalties for early surrender. They mostly target customers who do not want to spend time managing their money. I would suggest to learn investment basics and manage your own investments. With consolidated platforms like MFUtility, it is actually very easy to manage investment these days.

[Ragul]

Originally Posted by graaja

A2: Please avoid. This has been discussed a lot before. Most of the endowment policies are scams with very low returns (5% to 6%), but with lots of penalties for early surrender. They mostly target customers who do not want to spend time managing their money. I would suggest to learn investment basics and manage your own investments. With consolidated platforms like MFUtility, it is actually very easy to manage investment these days.

So I took an endowment policy without really understanding the stuff and I would like to cancel while it’s still in the free look period. Do I need to give any elaborate justifications around what terms and conditions I don’t agree with or can I just say I changed my mind because I don’t believe it’s a great investment?

[graaja]

Originally Posted by Ragul

So I took an endowment policy without really understanding the stuff and I would like to cancel while it’s still in the free look period. Do I need to give any elaborate justifications around what terms and conditions I don’t agree with or can I just say I changed my mind because I don’t believe it’s a great investment?

I don't think you need to give them any justification for cancelling the policy. Instead of saying the policy is not a great investment (which will result in some strong brainwashing attempts from the relationship manager to make you keep the policy), just say your financial situation changed and you need the money for some urgent stuff. They will definitely try to make you stay with the policy and their attitude may change when you are firm in canceling. But hold your ground and get it cancelled.

Below post is about the experience of another user who cancelled such a policy a couple of months back.

https://www.team-bhp.com/forum/shift...ml#post5004406 (The Mutual Funds Thread)

How many days of free lookup do you have. Make sure you send them an official email about canceling the policy. Do not trust phone calls to record your request to cancel.

Also, if you can post details about this particular policy, we can do a double check of what returns the policy offers and what are the penalties involved etc. That way you will be armed with enough information.

[Ragul]

Originally Posted by graaja

I don't think you need to give them any justification for cancelling the policy. Instead of saying the policy is not a great investment (which will result in some strong brainwashing attempts from the relationship manager to make you keep the policy), just say your financial situation changed and you need the money for some urgent stuff. They will definitely try to make you stay with the policy and their attitude may change when you are firm in canceling. But hold your ground and get it cancelled.

Below post is about the experience of another user who cancelled such a policy a couple of months back.

https://www.team-bhp.com/forum/shift...ml#post5004406 (The Mutual Funds Thread)

How many days of free lookup do you have. Make sure you send them an official email about canceling the policy. Do not trust phone calls to record your request to cancel.

Also, if you can post details about this particular policy, we can do a double check of what returns the policy offers and what are the penalties involved etc. That way you will be armed with enough information.

15 days. Exude Life Assured Gain Plus...
I got it via a cousin acting as agent so it might spoil relations a bit. I told him all the details of my financial status so I can’t lie about not having funds. But heck it’s my money.

[graaja]

I read the policy document and have worked out a table with surrender/maturity benefits.



The third column is what your corpus would be if you managed it yourself. I have assumed a post tax returns of 7%. Now the advantage of this is 100% liquidity with absolutely no penalty. You want the money for some emergency, all the money is yours.

Now compare this with the guaranteed and non-guaranteed returns from the policy in the last two columns. If you surrender your policy in the 5th year after paying 5 lakhs premium, you will get 2.8 lakhs guaranteed and if they declare bonus every year, you may get 3.09 lakhs.

For the bonus value, I have made assumptions that every year, they will declare some bonus which will be a cumulative value and have reverse calculated from the number they have listed in the first example they have explained in the policy document. The cells marked red will be still lower as you would not have paid the full premium and the returns will be declared based on the corpus at that point. So, probably the guaranteed additions in my calculations are the best case scenario.

If you were to surrender the policy in the 14th year and if they provide the best bonus, you will get about 7.4 lakhs, whereas if you had managed the corpus on your own, it would be worth 11.3 lakhs. On maturity, if you had managed your corpus, you will have 12.1 lakhs, but even with the best bonus payout, you can expect only 10.37 lakhs from the policy.

The reason for all this low return is the heavy overheads involved with the endowment policy. I am sure your cousin would be getting about 10% to 15% of your premium in the first year and some reduced value on every year you pay premium. And then comes the fee for managing your funds, and the premium they take for insurance etc.

This is the reason why one should never mix savings and insurance. Manage your own funds and take a term insurance. That is the best returns you can get from your investment.

Hope this information will help you in facing your cousin

[Ragul]

Originally Posted by graaja

I read the policy document and have worked out a table with surrender/maturity benefits.
--snip--
This is the reason why one should never mix savings and insurance. Manage your own funds and take a term insurance. That is the best returns you can get from your investment.

Hope this information will help you in facing your cousin

Thank you for the detailed analysis. I have been financially very naïve till now, only yesterday discovered so many books on Amazon about financial planning in Indian context and reading through a few beginner level books I purchased.
I don't understand all the calculations at this stage though still working on those. One question I had is why is the Sum Assured less than total premiums paid till date? Is it because of Insurance cost?
And what is GSV factor?

The terms and conditions say this:

: In case you disagree with any of the terms and conditions of the policy, you have the option to cancel the policy by
writing to the company stating the reasons for disagreement with the policy terms and conditions and return the original policy document to
the company within 15 days of the receipt of the Policy Document

Ps: On another note, I forgot to pay advance tax this year ending March 31 - what are my options? Can I just fill Challan 280 today. I suppose there will be a huge penalty for not doing it before March 15. But what about any extra penalty for paying after March 31st?

[graaja]

Originally Posted by Ragul

One question I had is why is the Sum Assured less than total premiums paid till date? Is it because of Insurance cost?
And what is GSV factor?

The sum assured being lower than the premium could be because of the expense ratio of the scheme, commission paid to agent, premium taken for the insurance and any other reasons the designers of the policy may have decided on.

GSV factor is mentioned in the policy document (available in Exide website). When you surrender the policy, the percentage of sum assured you get will be a low percent in the beginning and increase year on year.

If you had missed the advance tax, you can still pay the advance tax, and you can save on interest on tax. You will be charged one month of interest on the tax due. If you delay further, for every month, interest will get added.

[raksrules]

I am invested in several mutual funds and I fear I may be Diworsifying instead of Diversifying. I am thinking of cutting off some mutual funds and stop their SIPs and instead take that amount and put them in UTI Nifty Index Fund.

I am already putting in this UTI Nifty Index but just trying to shift the SIP from other funds to this so my monthly SIP in it increases.

Would that be right decision?

[DigitalOne]

Originally Posted by raksrules

I am thinking of cutting off some mutual funds and stop their SIPs and instead take that amount and put them in UTI Nifty Index Fund.

Would that be right decision?

Nifty Index fund + Nifty Next 50 index (ICICI Pru MF offers this) + a couple of Midcap funds should be enough. That will capture the full breadth of market cap and would be enough diversification.

[raksrules]

Originally Posted by DigitalOne

Nifty Index fund + Nifty Next 50 index (ICICI Pru MF offers this) + a couple of Midcap funds should be enough. That will capture the full breadth of market cap and would be enough diversification.

I did start SIPs in UTI Nifty and Next 50 just one month back and now planning to increase the monthly contribution there. Will be removing investment in couple of other funds.

[hrman]

Originally Posted by SmartCat

You are mixing two different things here. Franklin goofed up with their investments in their bond funds - that's why those particular MFs are shutting down and returning money back to investors. Franklin Templeton Mutual Fund House (the business entity) is still around, and you can still invest in their equity and other debt funds.

No mutual fund house will "wrap up" their business and shut down. Because assets under management is valuable. They will sell their business to another mutual fund house instead. Eg: Reliance Capital sold Reliance Mutual Fund to Nippon India.

Yes. Even Fidelity sold off to L&T. Kothari Pioneer ITI to Franklin Templeton. From that pov, I think MFs companies are reasonably safe.