ET Finpro 1 - Investment planning for a Conservative Investor

CONSERVATIVE INVESTORsAPPROCH

Mr. Verma

I have 2Lakh to Invest.

But Where???

Should I go for Banking/MF?

What if Stock Market crash?

How safe is MF?

Seem to me like a conservative investor But What is Conservative investor?

2

Who is a Conservative Investor?

Conservative investor have risk tolerance ranging from low to moderate. Those who have low risk tolerance are often extremely uncomfortable with the stock market and wish to Avoid it entirely. However, although this strategy may protect against inflation in short term. It will not earn the value over time.

3

Conservative investor

Conservative Investment

Aninvestment strategythat emphasizesCapital Preservation andRisk Minimization through a Diversification and BalancedPortfolioofLowRiskInvest-ments

CURRENT ECONOMIC SITUATION

Interest Rate Cycle is closely related to economic cycle.

http://indianexpress.com/article/india/india-others/inflation-falls-to-5-yr-low-but-rbi-may-hold-rates/

6

Interest Rate Expected To Fall

Present Monetary policy which target inflation at 6% and giving more weightage to inflation over growth indicated by keeping interest rate stable despite the inflation at 23 months low at 7.8%.

Government indicated lower fiscal deficit target and small borrowing program for FY2014-15.

It is Right time to lock-in the present interest rate. When the inflation eases further investor gain from increased Real Interest Return(nominal interest Inflation)

INVESTMENT OPTIONS

Public provident fund

Money market funds

Bank fixed deposits

National savings certificate

Senior citizen savings scheme

Investment in mutual funds

Govt bonds

Investment in insurance policies

Monthly income plans

Investing in a residential property

Guilt and Debt funds

PPF(public provident fund )

Individuals who are residents of India are eligible to open their account under public provident fund scheme .NRIs are not eligible.

Minimum investment 500Rs/-.

Maximum investment 1,50,000Rs/-.

Interest rate 8.7% per Annum.

Duration 15 years.

Principal Contribution is Tax Deductible U/S 80c

Interest Earned - Tax Free

Nomination facility is available

Suitable for Self employed, not covered under EPF.

PPF account is not subject to attachment in any order.

9

Bank Fixed Deposits

High level of Capital protection.

Tenure 1-10 years.

Interest rate - 7% - 9.75%;

Interest are compounded Quarterly*; Semi Annually; Annually.

Interest option Withdrawal or Reinvestment.

Tax benefit if invested for more than 5 years.

Tax can be based on Accrual Basis or Cash Basis.

Early withdrawal has a penalty.

Deposits Covered by DICGC.

Additionally investor can also consider Corporate Bonds but are risky.

http://www.pnbhfl.com/deposits/rate-of-interest.aspx

http://www.fundsindia.com/content/jsp/lp/fdeposit.do?utm_source=google&utm_medium=search&utm_term=interest%20rates&utm_content=Beta&utm_campaign=Beta-FixedDeposits&gclid=CjwKEAjwwdOhBRCG0fPrlfO1gGUSJAC1FmHX6X9bGZAdtuRMBunoVKgpIo9NBIRB9ufBCaRx3A98uxoCwfrw_wcB

10

Conservative Approach to MF

Investor can Select MF based on their risk appetite Represented as

Low Risk Medium RiskHigh Risk

Tax Implication U/S 80c, Indexation benefit.

Past Performance of the Fund (old Fund).

Past Performance of the Fund Manager.

Cost of the Fund Management.

Other Cost like Entry load and Exit Load can also lower the returns if not considered.

11

Mutual Fund

A Professionally managed investment vehicle that pool of funds from Small Investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets with a Common objective.

Kinds of MF

Open Ended

Close Ended

Interval Fund

Gilt Fund and Debt Fund

Offers higher returns than savings accounts.

Returns range from 6 to 20% based on period and risk category.

Debt fund are fairly safe investments as they invest in fixed income securities of governments and corporates.

Indexation Benefit is available under Income Tax Law.

It is advisable to choose Dividend reinvestment for a long term investor.

Debt fund Perform Better in the interest rate down cycle as interest rate and bond prices move in tandem(this was the case during 2004-08).

One of the largest pie of the mutual fund industry.

13

What conservative investor look for while SELECTING THE MF

Investment philosophy - Value investment strategy i.e. buy undervalued stock and sell when market find the potential. Some of the Famous people who use this strategy are Warren Buffett.

Diversified Fund and High Dividend Yield.

Low Volatility (additionally LOW Beta and HIGH Sharp, lower volatility of returns).

Diversified asset allocation.

Investor must allocate more towards Large cap and minimize investing in mid cap.

MF Category Dividend Yield Fund; Contra Fund; Value Funds.

14

Our Suggestion To Mr. Verma

Allocates Based on the assumption Long term; Expected Inflation - 8%; He is Fairly Insured.

Liquid Fund 20000 Principal money Market Fund (G) or Escorts Liquid Plan (G)

Bank Deposit PNB Housing 50000 For 10 Years.(15% annualized interest)

Debt Fund 50000 for 3 Years (expected return 20%) ICICI Pru Long Term (G)/Franklin Corporate Bond-Direct (G)

Value and Contra Fund 80000 - Religare Invesco Contra Fund.

Now Mr. is a Confident to take the investment Decision and Happy with the choice.

Q & A

BY

SUSHMITHA

SHILPA REDDY

BHARGAVA DATTA

RAMESH