Reinvest in fixed deposits

Babu Chettiar, who is 35 years old, is employed with a manufacturing company, while his 32-year old wife Sudha is employed with an IT company based in Chennai. They have two children aged 10 and 8 years. Both Mr Babu’s and Ms Sudha’s parents (in the age group between 65-70 years) live with them. The family headcount is thus eight persons.

They live in a large four bedroom house owned by Mr Babu’s father. They have two cars and have holdings in real estate and jewellery. Bank deposits of Mr Babu and his wife are around Rs 3 lakh. The aged parents get sufficient pension and have their own kitchen and take care of all their requirements independently. The medical needs are also assured through their erstwhile government employer.

This leaves us with only management of finances for Mr Babu and his immediate family. Their household expenses (driver’s salary, children’s schooling and other expenses, etc) amount to Rs 50,000 a month. They have a combined income of Rs 15 lakh per annum, post income-tax.
Their PF accumulation is Rs 12 lakh. Their bank balance is Rs 15 lakh, all in fixed deposit. They have an insurance policy of Rs 50 lakh. Mr Babu’s wife has jewellery worth Rs 30 lakh. The savings potential per year is Rs 6 lakh.

Financial goals

The goals to be achieved are medium-term and beyond. The educational expenses for the children till post-graduation shall require Rs 50 lakh, while marriage will take away another Rs 25 lakh. The maintenance of standard of living shall require accumulation of Rs 3 crore (assuming longevity as 85 years). The overall financial goals thus aggregate Rs 3.75 crore.

Where is he now?
Since there are no loans outstanding, the overall net worth is Rs 69 lakh. The liquidity in bank is sufficient and can help meet contingency requirements. Cash available shall help meet three years of living expenses.

Recommendations
The following is the suggested action plan to save and invest `6 lakh per year for the next 25 years (period until retirement) and assuming that the couple will continue to work till retirement:

Since the couple are in private sector and do not enjoy medical benefits as their parents, a family floater be taken to cover medical health and critical illness for self and the entire family for Rs 10 lakh (premium Rs 8,500 a year);

* Invest Rs 10,000 per month through an SIP into gold ETFs or mutual fund schemes. This will hedge against inflation and help you to purchase physical gold at later stage;

* Invest Rs 25,000 per month into two well performing diversified equity schemes. This will help in meeting educational needs of children;

* Foreclose your Rs 12 lakh fixed deposits. Of which, 50 per cent could be reinvested for 3-5 years at the higher rates prevailing now, while the balance 50 per cent could be invested into a fixed maturity plan for 1-3 years to gain on twin benefits of indexation and post tax efficiency;

* A sum of Rs 70,000 per annum could be invested in the names of the couple or their children, which will mature after 14 years to meet marriage expenses of children.

* A sum of Rs 5,000 per annum could be deposited in a recurring deposit for five years or more.

* Another Rs 50 lakh of term insurance could be contemplated by the couple (cost Rs 20,000 per annum)

* Mr Babu and his wife must also draw up a will in each other’s name to bequeath properties.

For more information visit to: http://deal4investments.blogspot.com/

[Source- Deccan chronicle]

Banks eye NRI deposits to boost biz

With deposit rates expected to dive after the RBI's move to slash key rates, bankers are banking on NRIs to supercharge their lockers. Moneymen say Wednesday's cut in repo rate and reverse repo rate would result in lesser movement of funds from NRE and FCNR (B) to NRO (non-resident ordinary rupee account) accounts.
The interest earned from NRO, which can be maintained jointly with resident Indians, is liable to tax in India. "The propensity to shift from NRE and FCNR (B) to NRO will reduce now as the interest rate arbitarage would be narrowed down," says M S Sundara Rajan, CMD ofIndian Bank.
However, the banking meltdown in the US and Europe will force many NRIs to look homewards to park their money. "The Indian banking and financial system is sound and that is prompting many NRIs to remit funds to India," says Rajan. The bank's FCNR(B) (foreign currency non-resident account bank scheme) and NRE (non-resident external rupee account) portfolio currently stands at Rs 3,000 crore. Rajan says that the bank has seen an increase in NRI deposits in the last couple of months. Adds Y L Madan, executive director of Indian Overseas Bank, "Worldover, fixed deposit rates offered by banks are pretty low. Our bank has seen a growth in NRI remittances since the advent of the slowdown."
Some banks have already effected a rise in their FCNR(B) and NRE deposit rates and others are expected to follow suit. While banks periodically review their FCNR(B) and NRE rates in accordance with the RBI guidelines, a hike in interest rate in such deposits assumes importance in the current scenario. "These deposits are normally of longer duration (upwards of one year) compared with domestic deposits like fixed deposits (upwards of 7 days). Given the current market scenario, our bank is in favour of mobilising long duration and low cost deposits," says P Y Nagar, general manager of Union Bank of India. Interest rates on the Union Bank of India's FCNR (B) deposits for five years now stand at 3.66% up from 3.45% earlier.

Similarly, Indian Bank recently hiked interest rates on its FCNR (B) and NRE deposits. FCNR (B) deposits of five years duration will now carry an interest rate of 3.66% up from 3.45% before the revision. Indian Overseas Bank is also expected to announce a hike in its FCNR (B) and NRE deposits after its assets liabilities committee meeting which is expected to be held this weekend.

Source:timesofindia

Tata Capital opens doors to retail investors

Tata Capital is a non-banking finance company (NBFC), which provides small and
Medium enterprises (SME) loans, retail loans and infrastructure loans. Through its
subsidiaries, the company is also present in fee-based businesses like brokerage, investment banking and portfolio management; however most of its asset book comprises of fund-based assets.
Recently, the company came out with an issue of non-convertible debentures (NCD) offering the yield of 11.57%-12% per annum (p.a.). The issue closes on February 24,’09. Considering the rates on the fixed rate instruments, the issue appears to be attractive. A couple of months back even banks were offering fixed deposit rates (FD) of 11% p.a.
However, the Reserve Bank of India (RBI) has cut the key rates dramatically leading to a low interest rate regime. Therefore, the banks have cut the FD rates. Going ahead, it seems unlikely that the banks will offer interest rates exceeding 10% p.a.
This makes Tata Capital’s issue of NCD even more attractive as the investor is assured of 12% p.a. at least for the first three years of the bond’s tenure. After 36 months, there is a put/call option, which means that the company and the investor have the option to redeem the bond. Moreover, NCD is a secured instrument, which adds to its creditworthiness unlike FD, which is not a secured instrument
The issue is coming at a time, when the economy is slowing down. As a result, most of the banks and NBFCs have gone slow on disbursements in order to take stock of the asset quality. Gone are the days, when NBFCs were expanding at high rates of 50% p.a. The outlook is challenging for companies in financing business. Tata Capital has said that it will be focussing on the companies within the Tata ecosystem. The company is prohibited from lending to the companies of the Tata Group.
However, it can lend to the suppliers and vendors of Tata Group companies. This is where it stands a great advantage, as sector expertise is crucial while deciding upon the borrower. And, it takes years for financing companies to build expertise and to this extent Tata Capital does have a head start. The company also has presence in big-ticket personal loans, where the repayment risk is much lower than low size loans. The slowdown has been severe to the markets which the company is targeting namely SME, personal and infrastructure loans. However, the slowdown fears are more relevant to bigger players, which have already tapped the market. As far as Tata Capital is concerned, its asset book stood at Rs 8,000 crore approximately on Sep 30,’08.
The company plans to raise maximum of Rs 1,500 crore with the current NCD issue.
Moreover, it has adequate capital to deal with any eventuality. Its capital adequacy ratio stands at 26.1% much higher than the 10% prescribed by RBI.
A strong capital base indicates that company has been efficiently managing the liquidity risk and it intends to scale up the operations. All these factors combine minimize the repayment risk on this NCD issue from an investor’s perspective. Moreover, ICRA and CARE, the credit rating agencies, have assigned LAA+ and AA+ rating to the issue, thereby affirming the company’s creditworthiness. It seems that the company wants to build a relationship with retail investors. This is evident as the minimum an investor can invest is Rs10,000. In a nutshell, it seems worthwhile for investors to subscribe to Tata Capital’s NCD considering that it is a secured fixed rate instrument, the yield is higher than other instruments, there is a lock-in of three years and the company has strong brand name. Basic understanding of its borrowers in SME space is an added advantage

Source:Economicstimes

Time to lock your money in bank FDs

Investors looking at high returns on deposits should soon lock their money with banks since interest rates on retail
deposits may have peaked.
Bankers say the cut in repo rates on Monday indicates that this is the beginning of a soft interest rate regime. Further, they said they would first lower their fixed deposit rates and then reduce lending rates. This indicates that banks may come under pressure to reduce deposits rates.

Currently, most banks are paying a maximum rate of 10.5% for one to less than three years while senior citizens are entitled for 11%. Interestingly, the 10.5% offered on deposits for three years was last offered in 1999-00, following which the interest rate cycle began to turn southwards. Rates had fallen sharply to 5.25-5.50% in 2003-04.

The country’s largest housing finance company, HDFC, offers as high as 10.90% for 30 months if an individual deposits Rs 1 lakh and above. While for deposits below Rs 1 lakh, HDFC offers 10.55%. Among others, ING Vysya Bank is offering 11% for 365 days and 10% for 99 days.

ICICI Bank, which offers 10.5% for 390 days, 590 days and 890 days while rates for other tenures are lower. Although 10.5% for 390 looks attractive, ideally, a depositor should
invest in long-term deposits like 890 days. This will help them avoid a negative impact of lower interest rates.

This means that if a depositor parks his money in long-term deposits, even if the interest rate cycle turns, the depositor would gain. The highest rate on longest tenure is 10.5% offered by India’s largest bank, SBI, which is for 1,000 days. Similarly, Indian Overseas Bank offers 10.5% for 720 days and Canara Bank offers 10.5% for 500 to two years.

However, while parking money with banks, particularly for long term, depositors should carefully see the clause regarding the pre-payment of penalty. Penalty varies from banks to banks. SBI and Indian Overseas Bank charge 1% penalty if deposits are broken during the tenure.

Source: Economictimes

UTI Mutual Fund gets ‘Star Fund House of the Year’ award

UTI Mutual Fund has been awarded the ‘Star Fund House of the Year’ by ICRA Mutual Fund awards 2009 in the equity category for one year period ending December 31, 2008.

UTI Mutual Fund was also awarded nine ICRA Mutual Fund Awards 2009 under its various schemes.

On the occasion, U K Sinha, Chairman and Managing Director, UTI Asset Management Company Ltd., said, “This is a result of the structural and process changes that we had initiated around 2 years back. The efforts of UTI fund management team has culminated in UTI Mutual Fund winning the Star Fund House of the Year award in the Equity Category. UTI Mutual Fund is a process oriented fund house which strives to give its investors the best possible returns. Recently UTI Mutual Fund has also won the Outlook Money NDTV Awards 2008 for the Best Debt Fund House for the year ended June 30, 2008.”

ICRA Mutual Fund Awards, based on the proprietary ranking methodology, is devised jointly by ICRA and ICRA Online Ltd. The ranking process considers only growth oriented open ended equity and debt schemes apart from liquid schemes where institutional plans are also considered.

For more information visit to: http://deal4investments.blogspot.com/

Source:financialexpress

ICICI Bank may cut rates in 45 days

The country's largest private lender ICICI Bank said that interest rates are expected to come down in the next one-and-a-half months.

"I think in next six weeks, interest rates are expected to come down. I think interest rates would be adjusted on their own," ICICI Bank CEO and MD K V Kamath said on the sidelines of a CII function.

In the recent days, many banks have reduced one-year fixed deposit rates by 2 per cent. HDFC Bank has also slashed interest rates on personal and commercial vehicles by up to 150 basis points.

The bank will also cut interest rates on corporate loans and wholesale credit, a move that will benefit small and medium enterprises and large companies.

Kamath, hinting at possible rate cuts said that the banks are also looking at passing it on to the customers.

"With the lowering of borrowing cost the banks will start lending at lower cost," he said.

With inflation declining sharply in the recent weeks and slowing demand, the Reserve Bank may signal softer interest rates even though it may not tinker much with key rates in the quarterly review of its annual monetary policy to be released on January 27.

Bankers feel that the RBI may maintain a status quo in their key rates as the Central Bank has already brought down CRR and short-term rates to inject Rs 3,00,00-crore liquidity into the system.

After hiking its signalling rates till October last year, the apex bank began slashing its cash reserve ratio, repo and reverse repo rates, to support growth.

The RBI has reduced its CRR to 5 per cent, repo to 5.5 per cent and reverse repo to 4 per cent.

Source: financialexpress

Citibank launches new fixed deposit product

Citibank, today announced the launch of a new fixed deposit product--Citibank Protect & Grow.

The product offers customers the safety of a fixed deposit with the option to channel the interest earned into mutual funds.

Customers will be able to choose any combination of a maximum of four open-ended mutual funds from among those distributed by Citibank, a statement issued here said.

Citibank Protect & Grow is designed to address the needs of investors seeking the potential to obtain returns that are greater than just the interest on the compare fixed deposit. The product offering is available for a minimum deposit of Rs 15-lakh for a minimum tenure of 1 year.

The fixed deposit interest rates, computed quarterly (simple interest), applicable for Citibank Protect & Grow are similar to those on Citibank's vanilla fixed deposits, it said.

"In the current environment, wealth preservation is as important as wealth creation. Therefore, we are very happy to provide our customers with an innovative solution that helps them get more out of their safe money," Citi India's Country Business Manager, Global Consumer Group, N Rajashekaran, said in the statement.

The key advantages of Citibank Protect & Grow is that it operates like a Systematic Investment Plan (SIP). The interest earned on the fixed deposit is invested every quarter into mutual funds, helping investors ride over the market highs and lows and averaging out the cost of purchase.

Citibank Protect & Grow will be distributed via the bank's 40 branches across 28 cities nationwide.


For more information visit to : http://www.deal4investments.com


Source:business.outlookindia.com

SBI slashes lending, deposit rates

The State Bank of India has decided to cut the prime lending rates by 0.75% from January 1, 2009. The PLR of SBI has been reduced to 12.25 per cent. As a result, all home loans and auto loans offered by the SBI will become cheaper on the New Year.

The cut in the PLR will be applicable to all existing and new floating rate loans. The SBI has also reduced its fixed deposit rates by 0.25-1 per cent.

Other banks, Union Bank of India and Canara Bank also have reduced their deposit and lending rates. Others may follow suit in a day or two. Among the private banks, HDFC was the only bank to reduce its PLR by 0.5 %. Others including the ICICI Bank are yet to take a decision on slashing the lending rates.



Source: breakingnewsonline.net