Wednesday, October 7, 2015
What is Truth?
Tuesday, October 6, 2015
Money Investment blogs to follow
Investment blogs to follow
http://myinvestmentideas.com/
http://www.jagoinvestor.com/2011/01/monthly-income-plans.html
http://myinvestmentideas.com/
http://www.jagoinvestor.com/2011/01/monthly-income-plans.html
Two ways of getting income from an MIP(Monthly Income Plan)
Two ways of getting income from an MIP(Monthly Income Plan)
We will see two different ways of generating monthly/quarterly income through MIP’s Monthly. One is the regular way of choosing dividend option and the option one is starting Systematic Withdrawal Plan from MIP after an year of buying it . Lets look at both and its pros and cons …
1. Choose dividend option
The good point in this option is that you will start getting the income immediately as company starts declaring the dividends, and you don’t have to take care of taxation issues. However the bad side is that eventually 14% dividend distribution tax would be paid by company and the stability of income will depend on how often dividends are declared by company. If they skip the dividend you will not be getting the income for that month/quarter .
2. Choosing growth option and start SWP (Systematic Withdrawal Plan)
If you use a bit of strategy, you can create a more stable and more tax efficient income by this method. You can choose growth option in MIP and after 1 yr you can start a SWP (systematic withdrawal plan , opposite of SIP) from your MIP to your bank account . What will happen with this option is that you will not have to depend on companies dividend announcement , as its your decision to liquidate a fixed part of your MIP’s, sell it and get the money in you bank account . Also as you are doing it after 1 yr, there wont be any exit load and the profits you get out of it would be Long term capital gains , so you only pay 10% on the profits (assuming you don’t want indexation benefits) , which is 4% lesser than the dividend distribution tax . If you have a large amount of investments in MIPs, then this option can save some tax for you, but if your investments aren’t significant enough, it’s not worth the hassle .
My choice would be to go with option 2 Growth option and start a Systematic Withdrawal Plan after 1 year.
Reference:
http://www.jagoinvestor.com/2011/01/monthly-income-plans.html
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Investment - MOney,
my farm plan ideas
Saturday, October 3, 2015
MAXIMIZE MONTHLY INCOME
MAXIMIZE MONTHLY INCOME
Do you want to know how to Maximize your Monthly Income than what is provided by your fixed deposits, post office investments etc.?
Very simple, invest in MIPs and read the below article completely to get a thorough insight as to how to maximize your monthly income.
MIPs stand for Monthly Income Plans offered by Mutual Funds. Many a time people have confusion between SIPs and MIPs.
SIPs are a way or method of investing in Mutual Funds.
MIPs are debt oriented hybrid products offered by Mutual Funds.
SIP is a method and MIP is a product.
So do not get confused between a SIP and a MIP.
Do you know ‘Asset Allocation’? This means allocating your money amongst various assets like Land, House, Gold and Financial assets.
Financial assets are again classified into Debt and Equity.
Debt refers to products like Employees Provident Fund (EPF), Public Provident Fund (PPF), Postal Savings, Fixed Deposits, Senior Citizen Savings Scheme, Bonds, Debentures, Debt Funds offered by Mutual Funds etc.
Equity refers to Shares, equity schemes offered by Mutual Funds etc.
Mutual Funds offer a unique product called MIP (Monthly Income Plan) which normally invests around 75% to 80% of the assets in Debt like Government Securities, Commercial Papers, Certificate of Deposits, Credit agency rated bonds, NCD (Non Convertible Debentures), Floating rate notes, Money market etc. They have the mandate of investing upto the balance 20% to 25% in Equity. They may also have the option of staying 100% invested in pure debt, if the fund manager feels that it is not advisable to have equity exposure at a given point of time.
MIPs aim at enhancing the return over and above what one normally gets out of Fixed Deposits and Postal Products.
I want to provide you an example of two of our favourite MIPs among our recommendations of few MIPs which are again amongst the entire universe of MIPs offered by all Mutual Funds inIndia.
Two of the MIPs we suggest as part of one’s core MIP holding, have provided annualized return of around 12% over the last 5 years period and have also provided an annualized return of around 11% to 12% since inception (nearing 7 years).
Compare the above returns with your other small savings fixed income products. You stand to gain more in good MIPs. Even a small increase can make a lot of difference to investors in Debt based products.
Disclaimer: Mutual Fund investments are subject to market risks. Past Performance may or may not be repeated in future. Please read all the scheme related documents carefully before investing. MIPs are not guaranteed returns products like Fixed Deposits, Postal Savings etc. and are riskier than the same. The above data is as on June 30th’11.
The minimum holding period we suggest for a MIP is 5 years, to get a significant return over and above a Fixed Income product.
Please do not forget the above disclaimer.
MIPs offer tremendous tax advantage.
There are mainly two options to choose from, dividend option and growth option.
Most of the advisors in the market suggest dividend option for people who need regular income without realising how they are minimizing the returns and jeopardizing the cash flow of an investor by suggesting this option.
Let me tell you why.
Dividends from MIPs are tax free in the hands of investors. But they do not realise that the mutual fund companies pays 13.84% as ‘Dividend Distribution Tax’ on the dividends paid, out of the scheme (Investors’ money) effectively reducing the returns of investors. Not only that the percentage of dividend declared is not consistent, and there are months when dividend payments are skipped. People who are dependent on a fixed and regular cash flow suffer a lot because of this.
Instead if they invest in growth option and start withdrawing a fixed sum through SWP (Systematic Withdrawal Plan) from the 13th month onwards, they have two advantages. Being long term capital gains, irrespective of the tax bracket an investor belong to, the tax rate is only a flat 10.3% (without indexation). This means they pay only 10.3% on the gains made viz-a-viz 13.84% tax on the entire money paid out as dividend.
Since the amount and date of withdrawal is fixed by an investor, he has a fixed, regular and predictable cash flow.
The withdrawal should start only from 13th month for the returns to be classified under ‘Long term capital gains’. If the amount is withdrawn during the first one year, it attracts an exit load of 1%. Not only that the returns are taxed as ‘Short term capital gains’, the tax rate being the tax bracket under which an investor falls into. If the investor is in the highest tax bracket, he has to pay tax at the rate of 30.9%.
Someone may ask, what I’ll do for one year without an income.
Very simple, what you require for the first year, keep it in your Savings Bank Account, earning 3.5% p.a. You invest only the balance amount for long term and can start the withdrawal from 13th month onwards.
The fixed income you would be getting out of your corpus, would be perpetual (subject to capital not getting eroded, for which chances are less, if you opt for a right percentage of withdrawal in discussion with your Personal Financial Advisor) and you can keep increasing your income by keep increasing the corpus.
How to increase the corpus, if you’ve no chances of getting money in future through any other means?
Simple Mr.Investor. We always advice to save atleast 20% of one’s income and keep reinvesting it in equity funds through SIPs (Systematic Investment Plan). This is to keep pace with inflation. If you don’t do this, the fixed income which you receive now, which is sufficient for your current cost of living, would cease to be sufficient in the years down the line.
As your SIP corpus keeps growing, once in 5 years or so, you can move the accumulated corpus to MIP. This would increase your MIP corpus, there by increasing your monthly income. Again you’ve to ensure that, atleast 20% of that money is saved through SIPs.
You’ve to keep doing this once in every 5 years so that your monthly income keeps growing and you will be able to manage the increasing cost of living.
Living long can be as risky as dying young, so says a great philosopher, who else, none other than Mr.Muthu!
Just ensure that MIPs form a core part of your financial assets.
Addendum: Written on 13th July 2014 after the presentation of budget for FY14-15
So far for the first year, MIPs are taxed at the tax slab you belong to and from 2’nd year onwards at a flat rate of 10%. Accruals are tax free and the taxation arises only at the time of withdrawal. There is no TDS (Tax Deducted at Source) also.
What has changed?
From now on, MIPs would be taxed at the tax slab you belong to for the first 3 years and from 4th year onwards the taxation rate would be 20% with indexation. Indexation means adjusting for inflation. So the actual tax rate would be significantly lesser than 20%.
To illustrate:
Let us assume you’ve invested Rs.1 lakh in a MIP scheme in March 2011. Let us also assume you got an annualized return of 10% and is withdrawing the same in April 2014.
Cost of inflation index for 2010-11 is 711
Cost of inflation index for 2014-15 is 1024
Cost of inflation index for 2014-15 is 1024
So Rs.1 lakh adjusted for inflation is 100,000/ 711 * 1024= Rs.1,44,022/-
At 10% returns, your MIP would have become Rs.1,33,100/-
Since the MIP value is lesser than inflation adjusted capital, there is zero tax liability for you.
My guess is that if inflation is high, you may have negligible or even no tax and if inflation is low or moderate, you may have significantly lesser tax (than the rate of 20%).
What has not changed?
The accruals continue to be tax free (i.e.) taxation is applicable only when you actually withdraw the gains. As long as you let it grow, there is no taxation. As you are aware, FDs are taxed on accruals every year.
There would be no TDS (Tax Deducted at Source). In MIPs, you’ve to declare the gains and pay taxes unlike FDs where the tax would be deducted at source and you would be paid only the balance.
What you should do now?
The minimum holding period we suggest for MIPs is 5 years. There is no change to that. We ask you to start SWP (Systematic Withdrawal Plan) from 13th month onwards so that there would not be any exit load. Even now you can continue to do the same. However from 13th month to 36th month, the tax rate would be the tax slab you belong to. From 37th month onwards, it would be 20% with indexation (which as explained above would be lesser than 20%).
I also want to highlight one more point. The SWPs of MIPs, each withdrawal, has a principal and an interest (gain) component. The tax would be applicable only on the gain part and not on the principal part. So you don’t pay tax on the entire withdrawals but only on the gain part.
So despite the changes in taxation in the recent budget, MIPs continue to be attractive.
On top of all these, MIPs are capable of giving returns superior to fixed deposits and many of you know this from your past investment experience itself. Though past returns do not guarantee future, it is a pointer for the potential and possibility.
Reference:
http://wisewealthadvisors.com/maximize-monthly-income/?blogsub=confirming#blog_subscription-3
Top Monthly income plans via MIPs
Best & Top Rated Monthly Income Plans (MF – MIPs)
Are you looking for that investment which can offer higher return than your Fixed Deposits? Are you searching for a better investment avenue to invest lump sum money for your short-term financial goals?
Then, Monthly Income Plans (MIPs) offered by Mutual Funds are one of the best investment options for you. MIPs can provide better returns than Bank Deposits / Post office Savings Schemes, but you should be willing to take slightly higher risk.
MIPs are suitable for risk-averse investors who do not want to take high risk (or) who do not want to invest in Equities or Equity oriented products, but can afford to take low or medium risk.
What are Monthly Income Plans (MIPs) ?
Monthly Income Plans (MIPs) are primarily ‘Debt oriented schemes’. These funds invest in a mix of equity and debt in the proportions of 20:80 or 30:70 or other proportions of similar kind. The objective of these funds is to provide enhanced regular returns to risk-averse investors by taking small positions in equity assets.
The major chunk (70 to 100%) of fund corpus is invested in interest yielding Debt instruments like ‘commercial paper, certificate of deposits, government securities, treasury bills etc., The remaining portion ( 0 to 30%) of the fund corpus is invested in Equity securities (stocks / shares).
The debt portion ensures stability, safety and consistency, while the equity instruments in the portfolio boost the returns. MIPs are market-linked products (to the extent of their equity portfolio).
Generally MIPs fall under Hybrid – Debt category of mutual funds. Depending on the percentage of equity exposure that MIPs take, they can further be classified into MIP Aggressive or MIP Conservative Plans.
MIPs which invest in equity securities in the range of 15% to 30% can be treated as “MIP Aggressive Plans” (Hybrid – Debt oriented aggressive schemes). These MIPs may offer slightly higher returns when compared to “MIP Conservative schemes”. But, do note that the improved returns come at ahigher risk.
Do Monthly Income Plans provide regular income?
MIPs aim to provide investors with regular pay-outs (through dividends). But, it is not mandatory for the mutual fund MIP scheme to provide regular income, as dividends are paid at the discretion of the fund house and subject to availability of distributable surplus.
Monthly Income Plan & options
- MIP Dividend Option (Income option) – MIP’s with dividend option provides you an income in the form of dividends. The dividends received by the investor are tax-free. The mutual fund company deducts DDT (Dividend Distribution Tax) at the rate of around 28% and then pays you the net dividend amount.
- MIP Growth Option – If you select ‘growth’ option, you will not receive any payments(dividends). You will get your returns only on selling the units. Since the fund does not pay out any dividends the NAV is much higher than that of the dividend option for the same fund or scheme. If you do not want regular income then you may opt for ‘growth’ option.
Top 3 Best MIP Mutual Funds in India (Conservative plans)
Below are the top rated Hybrid – Debt oriented & Conservative MIP schemes. (Returns given in the below table are for regular schemes)
1) SBI Magnum MIP Floater Fund – This fund has around 13% exposure to equity securities. It has generated returns of around 10.5% in the last five years. But fund has high expense ratio. If units are redeemed within 540 days after the allotment then exit load of 1.5% is applicable. This fund has ‘low risk’ grade and ‘above average’ return grade (as per valueresearchonline.com). This fund’s ‘Direct’ scheme has generated around 16.1% in the last one year (Regular scheme has given 15.4% return).
2) Birla Sunlife MIP II Savings 5 Fund – This fund has around 10% exposure to equities (stocks). The expense ratio is reasonable when compared to SBI fund. This fund also has ‘low risk’ grade and ‘above average’ return grade.
3) ICICI Pru MIP Scheme – It has around 14% exposure to equity and the remaining portion of the fund corpus has been invested in debt securities or in cash. This fund has ‘average risk’ grade and ‘above average’ return grade.
Top 3 Best MIP Schemes – Aggressive plans
Below are the top rated Hybrid – Debt oriented & Aggressive Monthly Income Mutual Fund schemes.(Returns given in the below table are for regular schemes)
1) Birla Sunlife MIP II Wealth 25 Plan – This has around 30% equity exposure and is the main reason for fund’s out-performance. If your investment horizon is around 2 to 3 years, you may consider investing in this fund. This fund has ‘below average’ risk grade and ‘above average’ return grade. The direct scheme of this fund has generated return of around 22% in the last one year (regular scheme – 20.7%).
2) ICICI Prudential MIP 25 Plan has 22% exposure to equity. The direct scheme of this fund has generated return of around 18% in the last one year.
3) Reliance MIP has 20% exposure to equity. It has low expense ratio. The direct scheme of this fund has generated return of around 18.2% in the last one year.
Important Points to ponder about Mutual Fund MIP Investments :
- The performance of MIPs is greatly affected by interest rates in the economy (as majority of the fund’s corpus is invested in fixed income securities). So, MIPs tend to perform well when the interest rates fall (when there is a downward trend in the interest rate cycle). You can observe that MIPs (as listed in the above TOP MIPs tables) have performed well in the last one year or so, as RBI started to cut interest rates. I believe that MIP schemes may continue to perform well in this year too.
- If you have a lump sum amount which needs to be invested for say 1 to 3 years then MIPs can be a better alternative to bank fixed deposits.
- You can also create SIPs in MIPs to realize your short-term goals.
- MIPs can be a decent bet if you are looking for regular income. You can opt for monthly or quarterly or half-yearly pay-out options.
- Do watch out for ‘Exit Loads’, as most of the MIP Schemes charge an exit load of around 1% if you redeem the units in less than one year of holding.
- Mutual Fund MIP Schemes are treated as Debt oriented schemes (non-equity funds). So, the Long Term Capital Gains (LTCG) taxes are applicable on the units which are held for 3 years or more. Short Term Capital Gains (STCG) taxes are applicable on the units which are held for less than 3 years. LTCG tax rate on MIPs is as per the investor’s income tax bracket and STCG tax rate is at 20% (with indexation).
- If you opt for dividend option then any dividend income received from Monthly Income Plans istax-free in the hands of investors.
- I believe that the ideal investment horizon in MIPs can be around 2 to 3 years.
There are few other alternatives to MF MIPs like Arbitrage funds, Fixed Maturity Plans (FMPs), Post office Monthly Income Plan etc., But, I believe that Mutual Fund Monthly Income Plans can be a better option for a conservative investor who is looking for better returns by taking limited exposure to stock market. MIP schemes offered by mutual funds are definitely worth considering.
Reference:
Thursday, October 1, 2015
Share trading audio book - The Intelligent Investor - Benjamin Graham
Share trading audio book - The Intelligent Investor - Benjamin Graham
https://soundcloud.com/aj-penton/the-intelligent-investor-benjamin-graham-audiobook
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