Kavitha Menon's Blog

“9.75% interest rates ” screamed the hoarding outside a prominent bank near the stock exchange . Bank interest rates are now looking attractive and it may be a good time to lock in debt allocations at high rates of interest . However before locking in your hard earned money in 'safe' bank Fds you must consider some facts. Taxes - Bank interest in fully taxable in your hands . Depending on the highest income bracket in which you fall , you may pay upto 30 % taxes on interest income . Effectively this means that a person falling in the 30% tax bracket will earn only 6.8% (9.75% less 30% taxes ) returns after paying taxes Inflation adjusted returns – Let me explain this with a simple example .Say you are able to buy your days requirement of vegetables for Rs.20 today . Assume prices of vegetable go up next year by 10 % while you have invested Rs.20 in a FD earning 8% . We also assume that you fall in the lowest tax bracket of 10 %. In a years time your Rs.20 would...

Money may only be a resource for achieving your life's financial goals, but an important resource it is. Inflation reduces your money's worth, making you poorer slowly but surely. With food prices once again making newspaper headlines, beating inflation is on the agenda of every citizen .Let me help you with some tried and tested tips to beat this monster. 1. Know your expenses: Generally I advise clients to break expenses into critical, important and discretionary. While spending on the former two are necessary, the discretionary expenses can be cut. So while groceries and electricity bills are critical expenses, the yearly family holiday is important while the bigger expensive car is a discretionary expense that can be avoided or postponed.  For planned expenses make a budget. Easier said than done, but a budget makes a big difference to savings during times of inflation. It will help you allocate money to the right expenses. Take an example of food expenses .How often ...

Kavitha Menon | Being a part of the Wealth Management Team, "Long term" is a word generously sprinkled in all our conversations with clients. Unfortunately more often than not client's perception of what 'long term' means is different from ours. We have heard various versions of the same, none of which does justice to this wonderful concept that adds the power of compounding to your equity portfolio and can create a substantial pool of wealth for self and progeny. Many investors complain about lost opportunities because they are long term investors, while many proudly produce fabulous returns using the same strategy. Let's see when long term isn't what it is made out to be. "I only buy and never ever sell" – Long term investing, hardly means that you keep a company forever irrespective of fundamentals. Even long term investors SELL and it is not because they are trying to time the markets but it is because they believe that the price of the...

Kavitha Menon |  Disability, partial or complete, due to accident or illness, makes it impossible for a person to continue earning as he or she did before the unfortunate accident or illness. In financial planning lingo, both death and disability mean loss of income. This loss of income needs to be covered using insurance. While most do have life cover, we cannot be completely assured of our families' financial safety without a complete disability cover. How much disability cover do we need? A cover equivalent to life cover is needed. The product should give a lumpsum amount, equivalent to sum assured, should one be unable to work productively in case of a physical or mental disability. Surprisingly there seems to be a huge lacuna in the product offerings from insurance companies in this space. Not only is there a lacuna there is also a lot of confusion on what such a product would offer. Disability insurance is not the same as accident cover. An accident cover protects again...

Schemes that invest a part or whole of their corpus ,either directly or through overseas investments funds ,in securities of companies listed abroad are called international funds. There are many variants within International Funds. At the most basic level there are schemes with over 65% in Indian equities. These are classified as equity schemes and taxed accordingly, while those with less than 65% in Indian equities are classified as non-equity and hence taxed on the same lines as debt schemes. Further more schemes in this space can be either direct equity schemes or FOF (Fund of Funds). FOFs are typically more expensive structures than regular funds as the investor pays fees/expenses to both the FOF manager as well as to the schemes that form part of the portfolio. Many schemes are also sector specific. They may invest in only commodity or bullion funds that invest in overseas markets. Thus a AIG World Gold or DSP World Gold fund invests your money in schemes floated by their parents...

A Depository Receipt is a type of negotiable (transferable) financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly listed company.( Source: www.investopedia.com ). An I DR (Indian Depository Receipt) is issued by a foreign company raising funds from the Indian market. IDRs are rupee-denominated and created by a domestic depository against the underlying equity shares of a foreign company. Sounds complicated? Let’s explain with a live example from our markets. Very recently Standard Chartered Bank which is a foreign company listed in the UK issued its first IDR in India. Effectively it purchased its own shares listed in UK ,deposited the same with a custodian -The Bank of New York Mellon ,on behalf of a Indian depository which is Standard Chartered Bank, Mumbai and against every 1/10 Standard Chartered share issued 1 IDR to Indian investors . Thus the Indian investor does not direc...

Its getting pretty hot out here ! . You would agree that our stock markets have caught the fancy of the entire globe . Every fund worth its name wants to increase allocations to our country. The results are showing, with equity valuations going into expensive territory. For value investors, these are difficult times. What does one do with funds allocated towards equities in such times ?. While parking money in debt investments is never a bad idea , another option is to look for value in equities other than in India . We are speaking about international equity investments. Post the 2008 correction, the current rally hasn’t been uniform across international markets . India has infact been one of the best performers in the ongoing rally while markets like China are still far away from the peak levels of 2007. Both developed and emerging markets would have a range of stocks that could be available at much better valuations than their Indian counterparts. For example - just like...