Going abroad? Pay for insurance from own account

MUMBAI: Buying international plane tickets for family members online is a breeze, but buying overseas mediclaim cover for others now requires advance planning. Insurance companies are insisting that electronic payment for policies must come from the policyholder's own account.

Nikhil W, who was trying to buy a last-minute overseas insurance policy for his father, discovered that the online system was not accepting a payment from his account. His parents who were travelling on their own had not activated any electronic payment services. Earlier, he had paid for his parents when he was part of the group that was travelling.

Insurers are invoking the principle of 'insurable interest' for rejecting payment through third-party accounts. Insurance interest means that the person buying insurance needs to have a financial interest in the subject of insurance.

This restriction is a challenge for those who have not bridged the digital divide considering that online payments are becoming the norm for many categories of policies such as auto, health and overseas travel. Also, in cases of policies where the commission is low, the insurance agent is reluctant to make the effort to collect the cheque.

"Any person paying the premium needs to have insurable interest. The insurance policy is a contract between the insurer and the policyholder and third-party cheques are not accepted," said K K Mishra, MD, Tata AIG General Insurance. He added that in the case of people who do not have net banking or credit cards, the company sends across a representative to collect the cheque.

According to Sanjay Datta, head of underwriting and claims at ICICI Lombard, the company accepts cheques of family members in family floater policies, but unrelated parties cannot may payments in respect of individual policies. He, too, cites the principle of insurance interest for rejecting third-party payments. In the case of life insurance too, almost all companies - including LIC - require that the online premium be paid from the policyholder's account.

However, there appears to be a mixed view in regulatory circles.

According to regulatory sources, the main reason behind the ban on third-party cheques is to avoid disputes in future. In the case of cheque payment, the insurance company is on risk from the time it receives the cheque. In case the cheque is not honoured, the company can commence recovery proceedings under Section 138 of the Negotiable Instruments Act. But if the cheque is paid by a third party, recovery becomes difficult.

However, a retired regulatory official said, insurers are mixing up the person who is facilitating payment with the person who is buying insurance.

"How does it matter if the payment is made by a third-party. The insurance company does not have any problem accepting a demand draft which could have been paid by a third-party or if a third-party has deposited funds in the buyer's account".

With markets booming, it is time to clean up your portfolio

Investment experts are asking individual investors to use the booming stock market to get rid of dud stocks and mutual fund schemes in their portfolio. They are also advising investors to rebalance their portfolio to conform to their asset allocation plan, as the share of equity assets in portfolios would have swelled due to the rally in equities.

It is also a perfect occasion to book profits, they added in good measure. The S&P BSE Sensex touched all-time high of 21321 on Sunday during Muhurat Trading. "Many mutual fund investors do not keep track of the performance of their schemes. This is a good time to review the portfolio and get rid of schemes that have yielded poor returns vis-a-vis their counterparts from other fund houses," says Suresh Sadagopan, certified financial planner and founder, Ladder7 Financial Advisories. "You should consider booking profits and exiting some of your equity investments to adhere to your original asset allocation plan," he adds.

Raghvendra Nath, managing director, Ladderup Wealth Management, points out that retail investors tend to hold onto bad investments due to the fear of booking a loss, which prevents them from undertaking the task of portfolio review regularly. Those who have failed to review the portfolio should make the most of the current market surge to eliminate dud stocks and mutual funds, he says.

"If a stock or mutual fund scheme is not doing well, you should get rid of them after a review, instead of waiting for good times to come. For instance, if you had disposed of a bad stock, say, six months ago and replaced it with a performing stock, the latter would have yielded even better returns during this market rally," he explains. Similarly, if you feel your fund manager has been under-performing for a long time, you should sell off the units, irrespective of market conditions.

Experts says investors should evaluate returns from mutual fund schemes over one, three and five years before taking a final decision. "Comparing your fund's returns with its peers' over these three time periods will be an indicator of its utility value to your portfolio," says Harshvardhan Roongta, certified financial planner and CEO of Roongta Securities.

You need to exercise caution while making such comparisons, particularly in case of mutual funds. "Avoid apples-to-oranges comparison. For instance, in the recent times, mid-cap funds have underperformed severely, while largecaps have done reasonably well. Retail investors who own one largecap and one mid-cap fund tend to make the mistake of comparing the two and switching out of the latter.

Instead, they should look at the right indices for benchmarking. In this case, mid-cap should be benchmarked against mid-cap index and large-cap against Sensex or Nifty," adds Nath. Similarly, a comparison between funds in your portfolio bought over different time periods, too, will not be an accurate indicator.

Rather than comparing funds within your portfolio, assess their performance with respect to the category average, benchmark indices and time periods. In addition, find out whether the fund is adhering to its stated objective. "You can scan the reports sent to you and figure out whether the stocks in the portfolio match the objective. For instance, if an infrastructure fund is investing in banking stocks when your intention was to invest in capital goods companies, you may need to re-evaluate your decision to stick to the fund," says Roongta.

Amplify your gains with margin trading

Want to trade in the stock market without having enough resources? Also don't mind taking high risks? Then margin trading may be one option for you. As the name suggests, margin trading is a leveraging mechanism which enables investors to take exposure in the stock market over and above what is possible with their own resources.

However, despite being a good option of trading for the so-called 'bravehearts', you need to tread with caution. That is because while this mechanism increases your buying power, it enlarges your risk as well. In a way, it amplifies your gains and losses in equal proportions.

This explains why it is still not a recommended way of trading, although the lure of big money has always thrown investors into the lap of margin trading. So much so that an increasing number of small investors are now giving in to temptation of this high-risk trading strategy which had traditionally attracted only short-term punters and deep-pocketed investors.

Market regulator Sebi, from time to time, has been prescribing eligibility conditions and procedural details for allowing this facility.

"Sebi has, for instance, set certain criteria for the securities to be eligible for margin trading facility. It has categorized the securities under three groups, namely, Group 1, Group 2 and Group 3. The securities having mean impact cost of less than or equal to 1 and having traded on at least 80 per cent (+/-5%) of the days for the previous 18 months have been categorized as Group 1. A significant point to note is that the facility of margin trading is available only for Group 1 securities," says Mehul Kothari, senior technical analyst, Market Financial Intelligence.

Sebi has also set the eligibility criteria for brokers to provide the margin trading facility to their clients. For instance, currently corporate brokers with a net worth of at least Rs 3 crore are eligible for providing margin-trading facilities to their clients. However, before providing this facility to a client, the member and the client have been mandated to sign an agreement for this purpose in the format specified by Sebi.

It has also been specified that the client shall not avail the facility from more than one broker at any time. Also, at any point of time, the total indebtedness of a broker for the purpose of margin trading shall not exceed 5 times of his net worth. "Besides, the 'maximum allowable exposure' of the broker towards the margin trading facility shall be within the self-imposed prudential limits and shall not, in any case, exceed the borrowed funds and 50% of his net worth. The broker has to also ensure that the exposure to a single client does not exceed 10 per cent of his total exposure," informs Ashish Kapur, CEO, Invest Shoppe India Ltd.

To get a clear picture of how the margin trading mechanism works, consider the following example. Mr X bought 1,000 shares of ABC Ltd at Rs 210 in early 2012, using the margin finance facility. Assuming his broker offered him 50 per cent leverage on the transaction, this would mean that Mr X effectively paid only half the total transaction amount (only Rs 105,000 out of Rs 210,000) at the time of purchase. The balance, however, was borrowed from the broker/bank, which provided the margin finance facility.

This would have been a win-win situation for both the parties involved had the ABC Ltd share price risen to, say, Rs 220 in a week's time. Mr X would have been richer by Rs 10,000 (minus the interest that he would have to pay to the broker/bank for the borrowed money) and the bank/broker would have gained to the extent of the interest amount on the funds borrowed. Mr X's net profit as a percentage of his initial investment of Rs 105,000 would have been an attractive 9.5 per cent, within the short time-frame.

But, in reality, suppose the share price of ABC Ltd did not go that high. In fact, during the crash, it actually dropped to Rs 175. Mr X would then be incurring a loss of Rs 35 per share, exposing his financer to more risk if the share price were to plummet further.

"It is typically during such times that the broker is forced to make margin calls to clients, asking them to either deposit more money into their account or sell some of the securities in their account to meet the margin shortfall," says Kapur.

Now if Mr X failed to make good the margin shortfall, his broker would sell his shares for the stipulated amount in consideration. Thus, apart from losing his investment, Mr X would also stand to lose the opportunity to make any profit in the future, were the share prices to recover.

EPFO settles 28% more claims in October month on month

NEW DELHI: Retirement fund body settled 10.21 lakh claims including transfer and withdrawal of Provident Fund in October, which is 28 per cent more than such settlements in September this year.

"The Employees' Provident Fund Organisation (EPFO) settled 10,21,922 claims during the month of October, 2013. This is 28 per cent higher than the claims settled in September, 2013," an official statement said here.

It said 72 per cent of these claims (settled in October) were settled within 10 days while remaining 28 per cent were settled within 30 days.

Besides improving performance on claims front, the body has also reduced the number of grievances considerably. EPFO's efforts in grievance redressal has paid dividends.

The number of complaints in Central Public Grievances Redressal System (CPGRAM) has come down to less than 100.

The number of grievances in Employees Provident Fund internet Grievance System (EPFiGMS) have also got reduced from more than 25,000 to less than 5,500.

During a recent review, EPFO's Central Provident Fund Commissioner K K Jalan observed that 108 offices out of 123 offices of EPFO do not have a single complaint that have been kept pending for more than 30 days.

EPFO recently bagged the Financial Inclusion and Payment System award for the year 2013. It paid more than 93 per cent of claims electronically and more than 99 per cent of pensioners got pension through core banking solution account number as on November 1, 2013.

In a volatile market, take SIP route to build your portfolio

SIP investors in equity mutual funds have a different story to tell, despite the Sensex and Nifty remaining flat over the last three years. Investors who used the SIP route and invested a fixed amount of money in equity mutual funds at a specified date every month, have earned a return of more than 10% in the same period.

For example, a three-year SIP in Axis Equity Fund has given investors 14.01% returns. As compared to this, a lump-sum investment in the Sensex or Nifty would have given you a mere 1.36% and 1.02%, respectively.

SIPs help investors put in small amounts of money every month and invest in a staggered manner. "The markets have been volatile over the last three years. Investing in mutual funds through SIPs ensured investors accumulated more units when markets were hovering at lower levels," explains Rupesh Bhansali, head, mutual funds, GEPL Capital. This strategy seems to have paid off for investors. "As the indices move close to an alltime high, many of these investments are now showing healthy profits," says Rupesh Bhansali.

Most investors are aware of rupeecost averaging and the last three years are a classic example of it.

"SIPs help you buy more when the markets are low. When the equity markets remain volatile for long periods and eventually move up, investors in SIPs make money," says Chandresh Nigam, managing director and chief executive officer, Axis Mutual Fund. He further points out that many active fund managers have managed to beat the benchmark in the long-term. A SIP in a well-managed diversified equity fund can improve your returns over the medium- to long-term. Many experts believe that investors should not time the markets and use the SIP route to investing.

"SIP is the best method of investing in equities, as we do not know which direction, up or down, the markets will go," explains Harshvardhan Roongta, principal financial planner, Roongta Securities. Mutual fund SIP can be used to build a diversified equity portfolio. Experts prescribe a mix of large-cap and midcap oriented equity funds in line with one's risk appetite. Typically, mid-cap funds should not be more than 40% of your equity allocation. You can pick up five-star rated funds by independent agencies such as Value Research and Morningstar. You can also consult your advisor.

Rupesh Bhansali recommends ICICI Focused Bluechip Fund, BNP Equity Fund, UTI Opportunities Fund among large-cap funds and Magnum Global Fund, IDFC Premier Equity Fund and ICICI Discovery Fund among mid-cap funds. But if you do not know how to choose the right fund or are unsure if the fund recommended by your advisor will emerge as a winner, you could even opt for an SIP in an index fund.

Will a nominee inherit your assets?

If you think appointing nominees for all your investments, from insurance to property, is as good as drafting a will, you may be wrong. Mumbai-based Nalin Shah found this out recently when he approached his lawyer for drafting a will. In 2010, he had appointed his wife as a nominee in an insurance policy, but his lawyer informed him that his wife would not automatically receive the sum insured.

Instead, the legal heirs named in his will would inherit it. Experts say that a nominee is merely a trustee, who must distribute the assets to the legal heirs named in a will, or as per succession laws.

However, there are some investments, like company shares, where the provisions of the respective Acts override those of succession laws. Here's the legal position of the nominee in different situations.

Insurance

As per Section 39 of the Insurance Act, 1939, the insurance company must hand over the amount to the nominee mentioned in the policy. The nominee is expected to distribute it to the legal heirs listed in the policyholder's will. In the absence of a will, individual succession laws come into play. In 1983, in the Sarbati Devi vs Usha Devi case, the Supreme Court took a clear stand on this matter.

Usha Devi was appointed the sole nominee in her husband's insurance policy, and upon his death, she claimed absolute right over the amount. However, her mother-in-law, Sarbati Devi, claimed a stake in the insurance amount.

The Supreme Court stated, "A mere nomination made under Section 39 does not confer on the nominee any beneficial interest in the amount payable under the life insurance policies on the death of the insured." The amount, however, can be claimed by the heirs of the assured in accordance with the law of succession governing them.

Property in cooperative housing society

As with insurance amount, a nominee to a property in a housing society does not automatically inherit it. On the death of the original owner, the housing society has to transfer the shares of the deceased to the nominee, who must, in turn, transfer them to the legal heirs.

In 2009, in a case that had dragged on for 29 years, the Bombay High Court gave a verdict that reiterated the legal position of a nominee. In the Ramdas Shivram Sattur vs Rameshchandra case, the former had bought a plot in Nav Rajasthan Co-operative Housing Society in Pune.

Sattur had named his wife, Tarabai, as nominee, and on his death, she tried to sell it. However, she was sued by her four children, who claimed a share in the property.

As per the Hindu law, if the deceased doesn't leave a will, the property is shared equally among the wife and children. The Bombay High Court ruled that since the nominee represented the legal heirs of the deceased member while dealing with the cooperative society, he/she was only empowered to act on behalf of the real owners, that is, only till the court decided the legal heir(s) entitled to the property.

Bank accounts, mutual funds & other investments

The nominees in the case of bank accounts, mutual funds and other investments also need not be the automatic, sole beneficiaries. The RBI guidelines make this amply clear, as does the Calcutta High Court, in the Arnab Kumar Sarkar vs Reba Mukherjee & Others case of 2006.

It ruled that "a nomination with respect to a bank deposit cannot be elevated to the status of a testamentary disposition merely by reason of the death of the depositor prior to the receipt of the proceeds from the deposits". In such a situation, refer to Section 45ZA of The Banking Regulation Act, 1949.

Employees' Provident Fund

The situation is different in the case of EPF. Here, it is the nominee, not the person stated in the will, who inherits the amount. In fact, according to the rules, you cannot nominate any person other than a family member to your EPF account, unless you do not have a family at all.

Moreover, once you acquire a family, you will have to change your nomination in favour of a member. You can also nominate multiple family members and state the proportions in which they will inherit the EPF monies. For further clarification, refer to Section 61 of the Employee Provident Fund Scheme, 1952.

Equity, gold, real estate: Tips to make your first investments

It is not an easy time to be an investor. Even though you may be spoilt for choice, there is a high degree of volatility across asset classes. This means that one has to be extra cautious while choosing investments. Whether you are opting for equity, fixed income, property or gold, the current environment will punish you for rash or untimely decisions. For those who have just started saving, taking the initial steps into the world of investing is even more daunting. It's the same for anyone exploring a new asset class.

Often enough, initial investments are done without proper planning, homework or understanding one's requirements. Prasenjit Paul from Kolkata recalls his maiden steps in the stock market. "I started intra-day trading without adequate knowledge and suffered a huge loss by taking deliveries; the value of my portfolio reduced by 30-40%. I couldn't use the stop-loss arrangement and the losses kept increasing," says the 22-yearold. Paul learnt from his mistakes quickly and today runs a stock advisory firm.

For first-time investors, identifying the right initial investment can be a challenge. Where should I begin? Should I play safe and invest in a fixed-income instrument that offers guaranteed returns? Should I go for high-growth investments like stocks or equity mutual funds? You have to be careful with your choice to ensure that you begin on a solid footing and build a stable foundation. It should provide a sense of confidence as you move ahead. As Lao Tzu, the Chinese philosopher, said, 'A journey of a thousand miles begins with a single step.' In the following pages, we offer you a helping hand as you take your first step.

EQUITY

Many of us choose to stay away from the stock market because of the risky nature of such investments. For some, it is akin to gambling in a casino. However, we also hear of stories where people have made fortunes from stocks. Some of your friends, relatives or acquaintances will recount their experiences of doubling or trebling their money within a short span of time. Naturally, this gets you thinking. Should I try my hand at the stocks game? How can I make handsome gains from equities? More often than not, you take the plunge. You open a demat and trading account, and make your initial purchase—possibly a strong blue-chip company that you admire, or an emerging company you have heard a lot about. Either way, this may not be the ideal route for everyone.

WHY TO INVEST

If you have made up your mind to invest in stocks, make sure you are doing so for the right reasons. If you are looking to make quick gains and exit, then you are setting yourself up for long-term pain. Unless you are able to time your entry impeccably, you cannot earn good returns consistently. Equity is an asset class that rewards you the most if you stay invested for a reasonably long period of time. It is probably the only asset class that has the potential to beat inflation over the years. It is crucial that investors come equipped with the right attitude and understand the risks involved. Hemant Rustagi, CEO, Wiseinvest Advisors, urges first-time stock investors not to treat it as a source of excitement. "Stock investing is not a gamble. It is a serious investment opportunity," he says.

Strategic investing can ensure easy retirement

By: Uma Shashikant

etting a strategic orientation to investing is a tough task. Typically, investors become too ambitious about what they want: good return, low risk, capital protection, and access to money at any time. The quest for the best investment choices begins with this question: what is the one thing that cannot be compromised? This is the core investment objective.

After this, strategic investing demands to know the constraints in getting there. The resulting investment plan is a compromise solution because it recognises that one cannot have it all. However, it is strategic because it focuses on what matters the most and seeks to get there. The investors who are about to retire hold a corpus built through several years of work.

They are past their peak income and primarily depend on this corpus for their post-retirement income. Many of them recognise their primary strategic need as a steady flow of income and, therefore, choose fixed income assets.

Bank deposits, government saving schemes and bonds are the popular choices. They believe their decision is strategic and correct because they have chosen on the basis of what they need—interest income, protection of capital and low risk. However, they may have missed a critical point. The single most important objective after retirement is to earn an income that fights inflation.

The fixed interest income from these traditional investments might look good in nominal rupee terms, but inflation is a number that compounds year after year. So, Rs 9 lakh of interest income from a corpus of Rs 1 crore might look more than adequate today, but if inflation were 7-8%, the expenses will double every 10 years. The corpus should double to keep the investor afloat, but since capital protection was sought to earn the interest income, the corpus will remain unchanged.

If the investor lives for 25-30 years after retirement, penury will hit at an age when increasing the corpus in any manner would be impossible to achieve. Investment decisions for the retired investor should take on board this core objective: the corpus should continue to grow and compound in value so that it fights inflation, while the investor draws income from it as required. On the face of it, this is a complex problem to solve.

There are two broad types of assets—those that offer growth in value, but earn a limited income; and those that offer a regular income, but do not grow in value. Growth assets are typically risky since their value fluctuates in the short term, but they appreciate in value in the long term. Real estate, equity and gold are examples of growth assets. The rental yield and dividend yield is tiny, and gold offers no income. However, these assets hold the potential to appreciate in value. Deposits, bonds and saving schemes are income assets.

They provide a regular income, but do not appreciate in value. If the retired investor chooses growth assets, he would be able to fight inflation as his corpus would appreciate, but there would be no income to draw. If he picks income assets, there would be income without the ability to fight inflation. Assume that Rs 1 crore is invested at a fixed interest rate of 8% and the investor hopes to draw Rs 6 lakh a year as expense.

If you consider an inflation rate of 7%, the interest income will fall short of the expense in a short span of five years since inflation would have taken the Rs 6 lakh at the start well past the Rs 8 lakh of annual interest income. The reinvestment of the initial years' surplus will enable the investor to stay afloat for another two years.

There will be a serious shortfall if one considers 25-30 years as the post-retirement period. How does the retired investor attain the core objective of inflation-adjusted income over the years? He should consider the compromises. What can he give up to achieve his strategic objective? The investor should see his expenses as withdrawal from a corpus that is allowed to grow, rather than ask for a regular income and preservation of the principal.

Five signs you need help to manage money

1) You don't know where your money goes

You know how much you earn, but are you aware where the money is spent? 'I don't know where all the money goes,' is a common enough refrain among investors. The proliferation of plastic has made matters worse, for credit cards are a convenient way of slipping into the debt trap.

You could fix the problem by drawing up a household budget and establishing some ground rules about spending. However, this is easier said than done, especially if you have been a spendthrift.

If you are living beyond your means and don't have any money to invest after all your expenses, you certainly need professional guidance. A financial planner could bring order to the mess by prioritising your spending and allocating resources to your crucial goals.

2) You have insurance plans, but don't understand

Insurance is the bulwark of any financial plan, and it is critical that you understand the features of the policies you have bought. Policyholders typically know how much premium they pay every year, but don't have a clue about the life cover or extent of coverage. It's difficult to blame them because there is a vast array of choices.

If you don't know the features of your policies, you will not be able to face the disaster it is supposed to cover. A professional planner will be able to guide you on the policies that meet your requirements.

For instance, the adviser may suggest term insurance, instead of the costly endowment policy the agent is trying to push. He may suggest a basic floater health insurance policy for your entire family, instead of a critical illness plan that covers specific diseases.

3) You have no provision for a contingency

'What if' are probably the two most unused words in the financial space. There are millions of people who have made no arrangements for eventualities or emergencies.

The question they need to ask is: what would my family do if I died today? Besides buying adequate life and health insurance, an individual must also have indulged in basic estate planning.

Writing a will allows you to choose who receives your assets after your death. Without a will, your heirs may find it difficult to access what is rightfully theirs. A financial planner will not only help you draft a will, but also advise you on the most appropriate ways to distribute your assets.

4) You are not prepared for your retirement

Retirement planning should be a primary financial goal, but not many investors consider it one. They think about retirement in their 30s, but start investing only when they have reached their 40s. Do you also fall in this category? A qualified financial planner may be able to help you get started. The first step is to estimate the cost of your retirement.

This is not as easy as it may sound because there are so many variables at work. At what age do you want to retire? What is your life expectancy? How much have you already saved and what are the returns you expect to earn on it?

A professional adviser will be able to identify the most suitable investment option for you depending on your age, risk profile and expectation of returns.

5) Your investments are not linked to specific goals

You invested in a mutual fund three years ago on a friend's advice. Then you bought some gold ETFs because they promised good returns. An insurance policy was purchased during the tax saving season two years ago.

You also have some money in a mutual fund that protects the capital, as well as fixed deposits. These are a lot of investments, without any goals. Experts say that every investment should be done to meet a specific goal.

Random investment decisions lead to a haphazard portfolio. A financial planner will be able to chalk out an investment road map for you, formulating a plan to reach each of your financial goals.

Accept claims bearing authorised signs: EPFO to field offices

NEW DELHI: Retirement fund body EPFO has directed its field staff to accept all claims that are signed by the authorised signatories irrespective of whether those are registered digitally or not.

"In case the employer has authorised few digital signatories in addition to existing authorised signatory, all such authorised signatories may also attest the physical claims an the signature will be verified from the specimen signature card of the respective authorised signatory," the EPFO's office order said

Last month, the Employees Provident Fund Organisation (EPFO) has started facility of online settlement of PF transfer claims on changing jobs, where registration of digital signatures of employers is a prerequisite.

However, the body has not stopped receiving physical claims from the employers for such PF transfer claims.

According to the office circular, "some field offices are rejecting the physical claims received on the pretext that the claims have been attested by the authorised signatories other than those registered for their digital signature with EPFO."

Elaborating further the order stated, "...the digital signature certificate of the authorised signatory are for the purposes of attestation of the digital claim by the employer. In addition to attestation of digital claim, the same authorised signatory can also verify the physical claims received through employer."

About the firms which have not registered their digital signature with the EPFO, the order explained that "in case the employers have not authorised any signatory for signing online claims, the physical claims will be signed by the existing authorised signatory and their signature will be verified from existing specimen signature card."

EPFO, which has the subscribers base of over five crore, is expecting 1.2 crore claims in 2013-14, including around 13 lakh PF transfer claims. The body has planned to settle online around 10 lakh transfer claims this fiscal.

During 2012-13, 107.62 lakh claims were settled, out of which 88 per cent of claims were processed within the prescribed 30 days as per the body's citizen charter.

Educate firms to avoid claims rejection, says EPFO to field offices

NEW DELHI: Retirement fund body EPFO has asked its field staff to educate firms about the process of various claims like transfer of PF and pension settlement, to avoid rejection on such applications.

Employees' Provident Fund Organisation (EPFO) has asked its field staff to identify all those firms whose workers' claims rejection ratio is over 20 per cent and educate them about the process to avoid that.

"...regional and regional sub office may approach all such employers where rejection ratio of claims is high and EPFO office may educate and train the employers who in turn may guide the employees correctly at the time of filing claims," an official circular stated.

The rejections of claims delays the process of settlement and causes inconvenience to the subscribers of the EPFO and increased the organisations's work load unnecessary.

According to the circular, the employers play significant role in the process of claim settlement of beneficiary. At the time of verification of claims the employer has the opportunity to detect obvious mistakes in furnishing the relevant information by the claimants.

During 2012-13, 107.62 lakh claims were settled, out of which 88 per cent of claims were processed within the prescribed 30 days as per the body's citizen charter.

EPFO which has the subscribers base of over five crore, is expecting 1.2 crore claims in 2013-14, including around 13 lakh PF transfer claims. The body has planned to settle online around 10 lakh transfer claims this fiscal.

Earlier this month, the body has started the service of online filing of PF transfer claims on October 2.

Investors shouldn't be in a hurry to exit

It may be Diwali time, but the firecrackers will still have to wait for the average investor. With the rally skewed completely in favour of select stocks and sectors, investors haven't benefited in a big way because of the sensex rally. They would have to tread cautiously and it would be difficult to reap handsome gains.

Here are five points that investors can consider while navigating the swift changes in the market environment:

Invest in diversified funds: Diversified equity funds haven't done well in the current rally. But they present a good investing opportunity as they are yet to recover lost ground, say experts. "Investors can opt for diversified funds and value-oriented themes," says Rupesh Nagda, senior VP and head (investment advisory), Alchemy Capital Management. "There are a large number of stocks that are undervalued. When the (real) revival happens, they would offer superior returns," he says.

Don't quit equity with measly gains: For all those who are seeing profits from equity investments after nearly three years, the urge to exit would be irresistible. Advisers, however, caution that investors should not exit equity funds in a hurry after making small returns.

"When the markets turn around, the feel good (factor) comes back. But many lay individual investors exit with 5-10% returns and come back at higher levels," says Sumeet Vaid, founder and CEO, Ffreedom Financial Planners. These investors lose out when the markets make a strong recovery. But the rally offers investors with short-term goals a good window to make profits, say experts.

Keep asset allocation intact: This cardinal principle of investing holds good both in times of crises and when the markets are on a strong wicket. "Keep your broad asset allocation intact as different asset classes would do well at different points of time," says Suresh Sadagopan, founder, Ladder7 Financial Advisories. "Investors can do a tactical rejig or reallocation in their portfolio but should not dramatically change their asset allocation," he says.

'Beaten-down' doesn't mean 'value': Several sectors that have taken a beating haven't recovered in any significant manner. But beaten-down sectors and stocks don't necessarily offer value for investors, say advisers. For instance, the fundamentals for the infrastructure sector, which is one of the worst performers in the last three years, have not changed, they say. "Investors should look at companies with positive cash flows, low debt and good business model," says Nagda.

Don't get carried away: Lastly, investors should not get carried away by the current rally as it is being driven by liquidity, say experts. "It is not a broad-based rally and is not driven by fundamentals. The economy is still not in a great shape," Sadagopan says.

Consumer inflation-linked savings plan for retail investors by year-end

MUMBAI: The Reserve Bank of India will soon launch an inflation-linked saving instrument for retail investors, offering people an alternative to parking their savings in gold. The central bank plans to launch the 10-year Inflation Indexed National Saving Securities (IINSS) for retail investors in consultation with the government before the end of December, RBI said in its second quarter review of monetary policy on Tuesday.

The rate of interest on these securities will be a fixed rate plus inflation based on the new (combined) consumer price index. The instrument will be distributed through banks.

The move aims to revive small investors' interest in financial assets. With unabated inflation, investors have been moving away from financial assets such as bank fixed deposits and small savings schemes, instead opting for physical assets such as gold.

Experts say IINSS will offer investors a good option to hedge against inflation.

Some say the government can make it more attractive by making the securities tradable. "This is a good option for investors who are of the view that inflation is going to rise," Joydeep Sen, senior vicepresident, advisory desk, fixed income at BNP Paribas Wealth Management, said. "However, since the returns will be received only at the time of redemption, these bonds should be made more liquid by listing them on exchanges. This, and a wide investor base, will make the instrument more attractive," he added.

The Union Budget 2013-14 presented in February had proposed a saving instrument to protect small investors from inflation. RBI governor Raghuram Rajan too had talked about such an instrument when he assumed office last month.

Inflation-linked bonds now available are linked to wholesale price indices. They have not taken off in a big way, partly because the returns on these are lower than consumer inflation, thus eroding the value of one's financial savings.

Inflation based on the wholesale price index for September was 6.46%, while consumer price inflation was 9.84%. As for bank deposits, the returns are in the range of 8-9%.

Unlike bank deposits where the individual has an option to receive interest payments at regular intervals, the return on these securities would be compounded half-yearly and paid cumulatively at redemption. Individuals, Hindu undivided families (HUFs), trusts and charitable institutions will be eligible to buy these securities.

Small investors to get inflation-linked savings scheme soon

MUMBAI: The Reserve Bank of India plans to soon launch a 10-year savings instrument that will offer inflation-linked returns to small investors as an alternative to investing in gold.

"It is proposed to launch Inflation Indexed National Saving Securities (IINSSs) for retail investors in November/December 2013 in consultation with the government," the RBI said today in its Second Quarter Review of Monetary Policy 2013-14.

The inflation-indexed securities for retail investors will be linked to the new (combined) consumer price index (CPI). The interest on these securities would comprise of a fixed rate plus inflation.

"Interest would be compounded half-yearly and paid cumulatively at redemption. These securities will be distributed through banks to reach out to the masses," the RBI said.

Eligible investors would consist of individuals, Hindu undivided families, trusts and charitable institutions.

The Union Budget for 2013-14 had proposed introducing instruments that would protect savings from inflation and provide an alternative to gold as an investment avenue for individuals.

Both the government and the RBI have imposed a host of restrictions on the import of gold, one of the major reasons for the record high current account deficit in the previous financial year.

In another decision, the RBI allowed banks to pay interest on savings and term deposits at shorter-than-quarterly intervals. Banks are currently required to pay interest on such deposits at quarterly or longer intervals.

Indians, Chinese not saving enough for comfortable retirement: Study

NEW DELHI: Indian and Chinese employees are at risk of not saving enough for a comfortable retirement as they often put their money in short-term instruments that may not provide a long-term hedge to inflation, a Towers Watson survey said.

According to the global professional services firm, workers in both countries are facing challenges accompanying increased life expectancies and post-retirement days, and they are at risk of not saving enough for a comfortable retirement. Given high rates of savings, it is hard to envisage a retirement crisis, but there are clear risks in translating them into a comfortable standard of living in retirement, the report said.

According to Towers Watson's Savings Attitudes Survey (India and China), approximately 90 per cent of workers in China and 80 per cent in India expect to retire at the age of 60 or less, with only moderate reductions in their spending power thereafter.

The most popular means of investment in India is purchasing gold or silver, with 41 per cent people considering buying jewellery a form of saving. In China, the most popular savings methods are bank deposits, mutual funds, pension plans, insurance products and equity investments. "Secure retirement benefits, whether mandatory or voluntary, are critical for an employee's future. With benefit costs ever increasing, employers need to facilitate retirement savings and raise awareness among employees by going beyond mere provision," Towers Watson India Benefits Director Anuradha Sriram said.

Sriram added "avenues such as the National Pension System will definitely attract employer attention as a sustainable retirement investment vehicle for employees going forward". The survey further said that in India, across age groups, "rising living cost" emerged as the single largest risk factor to live comfortably post-retirement. Housing and children's expenses (wedding/education) are the top two motivating factors for Indians above 35 to save. Moreover, there is a strong correlation between health status and financial decisions, it said.

Systematic investment with Bullion India makes gold and silver easily affordable this Diwali

KOLKATA: Gold and Silver prices reaching new highs, it has become very difficult for a common man to buy and posses these auspicious metals. Gauging this scenario, Bullion India, has launched a very unique investment plan, Unit Systematic Plan (USP), which helps customers accumulate physical gold and silver conveniently in small amounts through periodic systematic investments in a safe and secured manner.

The Unit Systematic Plan is available online on the website and interested customers can register online and upload their KYC details. Customers can also register and apply for the plan through the agent and broker network of Bullion India .The customer can invest in systematic investment options ranging from a period of minimum 6 months to 36 months.

The minimum investment amount has been kept as low as Rs 1000/- in this Unit Systematic Plan of investment, to make Gold and Silver easily affordable. At the end of the tenure, customers can redeem their units into physical gold and silver coins through Bullion India's website with an option of doorstep delivery across India or at multiple delivery centres. There are no activation or registration charges and the customers can also sell back their gold and silver units on the online platform of Bullion India at the end of the tenure.

This is the first structured bullion investment model that allows you to accumulate silver on daily basis

The customers will be credited with gold and silver units on a daily basis into their account. These units are backed by physical gold and silver which is kept with the vaulting agencies and is controlled and monitored by an independent trustee, IDBI Trusteeship Services, thereby offering maximum security and safety of the customer's investments.

Commenting on the benefits of the plan, Mr. Sachin Kothari, Director, Bullion India said, "In India, investing in gold and silver is considered to be a prerogative of the rich. We at Bullion India wish that even a middle class Indian gets an opportunity to reap the benefits of making investment in gold and silver. Through our Unit Systematic Plan, we aim to provide a common man with an opportunity to own small quantities of gold and silver at the lowest costs of buying. This will allow one to meet up with ones investment, savings goals, and other objectives like daughter's wedding, etc. A daily holding statement will be available to customers on the Bullion India website. Customers will receive e-mail and SMS confirmation at the time of application, and on days of deposits."

Unit Systematic Plan provides numerable benefits to the customer. It allows customers to average their price on gold and silver over a period of time. More grams are credited to a customer's account when the price of gold and silver is low. Customers get receipts for every payment made, and they can also access their account online.

Bullion India commenced its operations in October 2012 and has more than 50000 registered customers who invest in Gold and Silver online. Bullion India is jointly promoted by RiddiSiddhi Bullions limited, India largest bullion trading company and Finkurve Financial Services Limited.

Smart things to know about transfer of EPF account

1) The contributions to the Employee Provident Fund (EPF) account are made by the member (employee) and the employer. A new account is opened every time the employee changes jobs.

2) The contributions made by the previous employer and employee, as well as the interest earned on it, continue to be held in the previous account unless it is transferred to the new one.

3) The older accounts can become inoperative and may not earn any interest. The EPF accounts become inoperative if no contribution is made for a continuous period of 36 months.

4) Since no interest is paid on the balance in inoperative accounts, it is essential for employees to get this amount transferred to the new EPF account and earn interest on the consolidated amount.

5) The EPFO has launched its online transfer facility from October this year. The employees will be able to request for such transfers through its Online Transfer Claim Portal (OTCP).

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre and Arti Bhargava.

How should a young investor deal with a new inheritance?

Shaila Shah has just inherited a house from her deceased grandmother. She lives with her husband and child in Mumbai. She paid a high rent during the first three years of staying in the city, but did not have adequate income to afford a property. Her husband thinks they should sell the property and buy a new one, since the EMI will be lower if a large sum is paid after selling the house. How should Shah deal with her new inheritance?

Young investors like Shah are unlikely to have built a lot of wealth. The inheritance makes her wealthy, but comes with inflexibilities. It will not be possible for her to access parts of the property's value for any need. It is a bulky asset, which can be sold to realise its worth, or can earn a small rental yield. It's usefulness for Shah lies in its ability to help her save more than she did earlier.

Since there is no rental outgo now, Shah can use the savings to build wealth in addition to the new asset. If she builds equity and debt assets with the savings, in a few years, she will have a balanced portfolio that will be more accessible and flexible. So, if she wants to provide for the education of her child, she may not be able to sell the house, but can liquidate the investments she makes from the rental savings.

Selling the house to buy a new one might constrain Shah unless the latter costs the same. Adding an EMI to income at this stage will reduce her ability to save and concentrate her wealth in a house. She will also incur additional costs on stamp duty, registration and fees, besides the interiors of the new house. Shah should use her inheritance to augment her savings, and should take on any other commitment only when her finances are on a firm footing.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre and Arti Bhargava.

Maximise returns: 5 things that long-term investors do differently

By Uma Shashikant

A frequent question asked by investors is: how long is long term? As a research student working with annual returns, I would have answered the question with the results of my number-crunching exercises. Having witnessed several market cycles since then, I would now say that long term is infinite. A long-term investor would want to hold on to his investments forever.

It's more about attitude than number. When we choose a career, we do not invest in ourselves hoping to 'cash out' some time soon in order to pursue something else. Even those who switch careers successfully give their all to what they do. They invest in their careers as if it was all that they would do for a long, long time. Long-term investing requires this attitude. What would we do differently if we were long-term investors?

First, long-term investors take the time to understand what they are doing and why. Those who buy an IPO because they have made money mostly by buying IPOs earlier are not long-term investors. They are only replicating a lazy tactic to make money. If there is no method to selecting investments, they are not longterm investors. Such people want to know all about the investments they are buying. They spend time and effort on learning, research and analysis. Many take offence when I tell them they have bought a stock or a mutual fund on a whim or a tip. I then ask them to list their investments and tell me why they bought those.

By the time we reach the fourth item, the truth is out. Most investors buy without adequate groundwork and think that if they hold it for a long time, they are long-term investors. This is not true.

Second, long-term investors understand that returns will be reasonable; they do not expect miracles. If they manage a multi-bagger stock or a winning fund, they know that in the process of acquiring this star, they have also bought a few not-so good investments.

They may have exercised the same diligence in selecting the latter. Despite this, all their investments will not rise and shine. Long-term investors know that there is no formula for picking winners, that they will be fine on an average, and hence, keep their return expectations normal. If they earn a return of 15-16% in the long term, they have beaten inflation, earned more than the bank deposit rates, and built reasonable wealth. Getting to this number involves a few losing picks and a few multi-baggers, and longterm investors know this is the process to build wealth. They do not insist that each investment earn a high rate of return every year.

Why you should remain invested in tax-free bonds

Several tax-free bonds, issued in 2012-13, are now available at a discount to their issue price of Rs 1,000 in the secondary market. For example, 8.2% NHAI-N2, issued in January 2012 and maturing in January 2022, is now trading at Rs 975. Similarly, 8.26% REC, maturing in 2023, is trading at Rs 980. Bonds typically trade at a discount to their face value when the interest rate moves up. But that is bad news for investors in these bonds.

That is why many of them are wondering whether they should sell these bonds at a loss and subscribe to new tax-free bonds in the market, which offer a higher rate of interest. "It makes sense to hold on to these bonds and not sell at a loss as we expect the interest rate cycle to reverse soon," says Deepak Punjwani, head (debt markets), GEPL Capital.

Most investment experts feel it is a matter of time before interest rates start their downward journey. When that happens, bond prices will recover and will start trading above their face value.

"With the rupee stabilising in the range of 60-62 against the dollar, the immediate priority of the RBI will be to focus on increasing growth and lowering inflation," says Vikram Dalal, managing director, Synergee Capital.

"While rates may rise marginally by 25 basis points in the October policy, this could be the last of the hikes and there will be some indication of cutting rates in the coming months as inflation slows down," says Dalal. He expects the benchmark 10-year government security to trade between 8.25% and 8.35% in the next three months.

The 10-year g-sec is currently trading around 8.50-8.65%. However, this doesn't mean that you should start buying these taxfree bonds from the secondary market. "It doesn't make sense to make fresh purchases of these bonds from the secondary market as yields are lower than the primary market.

If you have additional money to invest in tax-free bonds, use the primary market route," says Deepak Punjwani, head (debt markets), GEPL Capital.

For example, 8.3% NHAI, maturing in 2027, trades at Rs993, giving you a yield of 8.45%. However, there are bond issues from PFC and IILCL in the primary market which offer better yields. PFC offers 8.79% for 15 years, while IIFCL offers 8.63% for the same tenure.

"The quality of issuers in the primary market is the same. Both PFC and IIFCL are backed by the government, carry an 'AAA' rating, which indicates highest safety in terms of timely repayment of interest and principal," says Vikram Dalal.

If you have a longer time-frame in mind, you could even invest for 20 years where rates are marginally higher. PFC offers 8.92% for 20 years, while IIFCL offers 8.75%. "Not only is the interest rate on these bonds high, they also give you an opportunity to earn capital appreciation when rates could fall down," says Vikram Dalal.

For example, if interest rates were to fall by 1% in the next one year, investors could earn as much as 10-12% by way of capital appreciation on a 20-year bond as well as the tax-free coupon rate of 8.92%. This could take your returns to as high as 20-21% per annum.