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Mutual Funds Investment made Simple

Investment planning for specific goals is increasingly becoming popular. Your dreams and aspirations can come true if you plan, save and invest in the correct financial instrument.  New investors often go through a steep learning curve before they become familiar with the different aspects of investing. There are certain tools available that help investors choose products to obtain their financial goals while also helping them become familiar with the nuances of investing.

Over the years, mutual funds have become popular due to the flexibility, ease of investment and diversification to suit the investor’s aspirations. Mutual funds have evolved and today, a plethora of products are available to suit your needs.

Choosing your financial goals

An important thing to remember is that you should have an overall goal coupled with smaller financial milestones that you would like to achieve within a fixed time frame. This should be your first step before you proceed with your investment.

Before you begin investing, you must fix the amount you are looking to invest, the time and how it will tie into your overall financial goal. You also have to choose between lump sum and monthly investment. However, the most important factor when it comes to investing in mutual funds is time. Shortlisting funds that have performed well historically as well as trying to understand their future performance requires extensive research and analysis which most people are not equipped to do on their own. OneClick Investment by ICICIdirect does that for you.

Investing in Mutual Funds  

Think of One Click Investment as your personal financial manager that will recommend products, send alerts and help you invest in a planned manner. Once you enter the investment amount and the mode of investment, the system will display several options consisting of various baskets of recommended mutual funds. The investor can then choose his/her favourable basket.

The product offers various baskets based on your requirements. Largely, they are divided into equity, which tends to have higher risk but also has the potential to create wealth and debt, which provides stable returns year on year.  Only those mutual fund schemes that have performed well in the past are included in your basket.

PACEing your investments

ICICIdirect’s One click operates under one acronym i.e. PACE (Performance, Analysis, Customization and Ease). One Click Investment offers ease and convenience of investing. The website clearly displays the past performance of the basket and across SIP and Lumpsum investment.

An interesting aspect of this product is that you can create multiple goals. For example, ‘Travelling the world’ can be one goal, ‘Buying a house’ can be the second.  You can do this by creating a separate ‘OneClick Portfolio’. For each goal, the portfolio would be shown separately. The investors will also receive system Customized notification about the change of recommendation from buy to sell.

Portfolios for investment

OneClick Investment allows you to manage your investment any time and the best part is that all the mutual fund baskets are backed by extensive research and analysis. It has a list of portfolios that makes it easier for you to choose the basket for your investment.

  • Maximizer: This is the most diverse basket available and it divides your investment into Large-cap, Midcap and Small Cap. This portfolio is recommended to those who are looking for a long-term investment of a minimum of 5 years.
  • Builder: This portfolio has a larger percentage of equity schemes coupled with a lower percentage of debt schemes that helps reduce the overall volatility.
  • 50-Fifty: As the name suggests, this portfolio has a balanced combination of equity and debt schemes.
  • Secure: This portfolio tends to invest in short term debt schemes with decent, stable returns over a short time period.
  • Stable: If you are someone who prefers safe investments and wants to begin small, this portfolio is perfect for you. This portfolio has a larger allocation to debt schemes in large-cap funds which tend to give stable returns that are higher than fixed deposits.
  • Tax Saving: Here the investment will be made in Mutual fund schemes which are eligible for deduction under 80C of the Income Tax act. This type of Mutual fund scheme is also popularly known as ELSS (Equity-Linked Saving Scheme).

Further, no mutual fund transaction charges are applicable to any investments done through One Click Investment. One thing to note is that you can have only one nominee for one investment basket. However, you can have a separate nominee for a separate portfolio.

Investing in mutual funds and taking a step towards your financial goals is just a click away. Do let me know if you have any questions in the comment section below.

Please note that Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

 

A detailed guide to investing in IndiGrid InvITS

investing in IndiGrid InvITS

What are InvITs?

InvITs or Infrastructure investment trusts are set up with an aim to create a steady flow of cash for investors by helping them to grow their assets. They operate towards releasing capital in existing projects and further help use it to build newer assets.  Investing in such projects helps to create new assets along with one’s existing capital.

Assets that are a part of an InvIT are power generation assets, toll/annuity road assets, power transmission assets, and ports. Each of these assets has a risk profile which means that any InvIT is a hybrid product. A hybrid product means that it is a combination of debt and equity. This helps to diversify your risk and ensure steady growth in one portion along with the possibility of good returns from the good performance of underlying assets. Returns are offered to investors is in the form of dividend, interest or capital.

What is India Grid Trust?

IndiGrid is also known as India Grid Trust was established in 2016 by Sterlite Power Grid Ventures Limited as an InvIT (infrastructure investment trust). As a part of this trust, IndiGrid has acquired 10 interstate transmission projects.

Why invest in power transmission?

– Assets and Investments are safe:

Returns from various infrastructure projects like roads, ports and power generation rely mostly on the operational performance of the assets. This is in turn dependent on factors where developers have little control. In the case of Inter State Transmission System(ISTS) transmission projects, the revenue counterparty is a pool of distribution and generation companies. This helps to reduce counter-party risks owing to diversification.

Inter-state transmission assets have low Operation and Maintenance costs, at about 7-8%, in comparison to other infrastructure assets like road projects where O&M costs can be as high as 35-40%.

Transmission lines can be used by Telecom and data service companies to provide services in potential semi-urban and rural regions. This would help in diversifying the revenue profile. In this way, transmission projects are insulated from the risk of poor returns due to the probable lower utilization of assets. In this way, they become a very attractive investment to make.

– IndiGrid, an excellent investment

IndiGrid has a target price and a Buy rating of Rs. 100 (as of Mar 2018). The target price is based on discounting the Distribution per Unit (DPU) of cash flows from the InvIT over the residual life of assets post FY 2018 at a cost of equity of 11%. This is assuming the inclusion of 8 assets into the project through FY 2019-22 via funds raised by a 51:49 mix of equity and debt.

The Internal Rate of Return in the IndiGrid is set to reach 12% by FY 2022 assuming Rs.100/unit as the initial outgo.

– High cash flow visibility

Roads, ports and power generation assets are different from other asset classes which usually have a higher risk to return profile. IndiGrid’s ownership of power transmission assets have long-term fixed tariff contracts and offer higher cash flow visibility with decreased risk.

– Aggressive growth

With a target to grow its AUM from Rs. 55 billion to Rs. 300 billion by FY 2022, IndiGrid takes an aggressive approach. Rs195bn of this growth will come from Right Of First Offer assets and the balance through organic/inorganic routes. Another 8 assets are planned in addition to the existing 6 assets within the project. They will be added in 3 tranches over FY 2019-22.

– IRR returns to assess performance

Typically, investors look at the cash yield of the instrument by benchmarking the distribution per unit (DPU) for a given year and dividing it with the prevailing price per unit to arrive at the yield. However, at IndiGrid the Internal Rate of Return is considered an ideal metric to assess performance. It is believed that the IRR is based on the initial cost per unit and is thus the correct method to compute returns.

– IRR returns should also factor in future asset injections 

The nature of underlying assets determines whether they may or may not have a long life. Thus, for an investor buying an InvIT, the IRR return would be a function of residual return cash flows from underlying assets which flows to the InvIT. 

Key risks

Like all investments, InvITs too come with their own risks. As an Investor, it is important to know the risk that you might be exposed to.

– Fluctuations in Interest Rates 

Being hybrid investments with holdings in debts and equity with a long tenure, the benchmark to their returns is the G-Sec yields. The expectations are of 200-300 base points additional IRR returns over G-Secs. IndiGrid is exposed to interest rate risks as it carries external debt at SPV level as well as InvIT level. It is however seen that the trust will continue to deliver additional 200-300 base points return over the Indian G-Sec yields with the addition of new assets into the IndiGrid InvIT.

– Incremental capital raising

The addition of ROFO assets assumes all incremental equity capital fundraising at Rs. 100/share along with leverage at IndiGrid Trust level between 8.35-8.5% for each tranche of incremental asset infusion. But any deviation in the same cause an unexpected dilution at the trust level leading to a change in the IRR returns of the instrument.

– Investment Manager is expected to deliver returns

The responsibility of delivering the returns, managing the risks and ensuring that asset addition takes place at a decent valuation. If an Investment Manager fails at the risk, then the return falls.

– The risk from asset unavailability 

IndiGrid’s assets qualify to earn revenues owing to maintaining availability above a certain threshold. However, if this falls below 95% due to unforeseen circumstances – system breakdown, human error and so on. – the company will under-recover revenues and/or face penalties.

– Force Majeure

While loss from force majeure is usually compensated, there may be times when such compensation might not cover the entire loss/damage suffered by the company. This could impact its business and revenues.

– Delays in Payments

State Electricity Boards tend to have weak finances. Power Grids have a direct conflict of interest with transmission asset owner and the Central Transmission Utility. This could lead to delays in payments.

Future and Conclusion

– India’s Power Transmission Sector

The power transmission sector in India can be segregated into the inter-state network (national grid) and intra-state networks (state grids). The management, regulation, and expansion of Inter-state grids fall in the domain of central government and that of intra-state grids fall in the domain of state and state agencies.

In the past 5-6 years, the government has made many additions to inter-state transmission capacities with an eye to ensure robust additions to power evacuation and transmission infrastructure between new power plants and major demand centers. But Intra-state transmission infrastructure development has been unable to be apace due to State Electricity Boards which have struggled with financial constraints.

However, this trend is beginning to change, as UDAY has helped SEBs to better their financials to some extent. The intra-state transmission capex target has been pegged at Rs 1.6 trillion and is likely to be increased to Rs 2 trillion over the next five years. This could become an impetus for the power transmission sector in India.

– Some insights

The revised Central Electric Authority data puts the power requirements for Financial Year 2022/2027 at 1,619MUs/2,130MUs. This indicates a remarkable CAGR of 6-7% in FY 2017 as it includes the savings made from energy efficiency measures.

The peak demand for FY 2022 is 235GW with the peak availability during the year being expected to be 247.5GW. Assuming a 6-7% annual increase in demand, the per capital demand for electricity would grow to 2000kWh by 2030 from the current 1050kWh. Regular demand monitoring is being done keeping in mind the required increase in generating capacities by FY 2024. This will also lead to a higher requirement of transmission capacities.

Moreover, there are about 40 million families in India that currently do not have access to electricity despite it being available for free under the Saubhagaya scheme. Given the impediments in the movement of coal, the generating capacity is set to increase in Pithead centres rather than in load centres. This will require inter/intrastate transmission way beyond that which has been planned till Financial Year 2024.

Edelweiss and ICICI securities have backed IndiGrid as an investment that will have long-term yields. They believe that the revenue earned from long-term contracts will balance out the overall risks.

The Power Transmission sector is thus set to grow by leaps and bounds in the decade to come.

Please note: All financial investments are subject to market risks. We urge to you read the fine print and discuss the investment with your financial planner before investing. This is a sponsored post. You are advised to use your discretion before investing. If you have any questions, please comment and I will be happy to answer them. 🙂

An in-depth guide to Term Plan in India 

term plan, term insurance plan India While our futures might be uncertain, we would always like to provide our family with the best financial support available. A term plan is a security blanket for your family when you are no longer a part of their lives.  Over course of time, we have discussed several instruments of investments. Today, let’s get to understand term insurance better.

What is a term insurance plan?

In simple words, term insurance plan is life insurance policy that will provide you coverage for a specifically defined period of time. A term plan is useful to secure your family in case of an emergency, future uncertainties and in case of death.

What kind of premium does a term plan attract?

The premium for term plans is comparatively lower than other life insurance policies. In life insurance policy, a part of the premium is used as investment however in a term insurance plan, the entire premium is used as risk cover.

If the holder expires during the insured term, the nominee receives the death benefit.

However, if the policyholder survives, there is no maturity benefit that is offered if the policy term is over. Certain plans return the premiums paid by the policyholder if they survive. The premiums can be paid in easy monthly instalments or even quarterly or annually.

What kind of plans are available?

There are two kinds of term plans; single life and joint life.

In a single premium life insurance plan, a person is insured for a specific period of time.

A joint life plan may prove to be advantageous for a couple as both the partners are provided with complete coverage. In case of death of either partner, the death sum assured will be paid.

In case of sudden death of the couple, their nominee would be paid the entire sum.

What criteria one must fulfil to be eligible for a term insurance plan?

Term plans have age criteria of 18 years to 65 years. The older you are, the higher the premium you pay.

Are term plans tax-free?

All the premiums paid towards term plans are exempted from tax up to a maximum limit of 1 lakh. The claim amount that a nominee might receive is exempt from tax under Section 10 (10D) of the Income Tax Act.

Can I change my term plan midway?

Most term plans are convertible which means that at any stage, you convert it to a regular life insurance policy or an endowment policy if your insurance company provides the facility. A nominal fee might be charged depending on your insurance provider.

One can surrender a term plan by paying the surrender charges which varies from one company to the other.

Can I plan the stages in which the nominee gets a payout?

Many term insurance plans offer a protection plan that gives you multiple payout options.

The nominee received a lump sum payout or a lump sum payout and a monthly income. There are other options available, too.

What is life stage protection?

Certain term plan providers offer something called the ‘Life Stage’ protection. When one gets married or starts a family, our responsibilities increase. The life stage protection options offers you an opportunity to increase your coverage by paying an additional premium.

What are some things one should keep in mind before buying a term plan?

Some of the important things you must keep in mind while opting for a term plan is as follows:

  • Track record of the insurance company in settling insurance claims
  • Ease of claim settlement for the survivor
  • What amount of coverage you should go for keeping in mind the likely future expenses and inflation.
  • Terms and conditions associated with the term plan

I hope you found this guide to be useful. When it comes to investments and money, it is always important to read the fine print carefully. I also urge you to discuss your options with your financial manager before making any decision.

Please note: This is a sponsored post. You are advised to use your discretion before investing. If you have any questions, please comment and I will be happy to answer them. 🙂

A detailed guide to personal loans in India

personal loans in India
Guide to personal loans in India

Personal loans India have increasingly become popular over the past few years. With commercial banks offering low and competitive interest rates, they have become more accessible to the common man or woman to fulfil their aspirations or to meet their needs.

We have put together a detailed guide on personal loans in India which would help you understand them better.

What is a personal loan?

A personal loan is a kind of loan that is not tied to any asset or collateral and is provided to help individuals fulfil their personal needs. A personal loan is not monitored by the bank and can be used by an individual as they see fit. Since there is a higher risk for a bank or NBFC, personal loans generally attract higher interest rates.

Which factors affect the sanctioning of personal loans in India?

Some of the factors that are important to receive a personal loan in India are as follows:

  • Age
  • Income level
  • Prior loans
  • Credit history
  • Employment
  • Financial obligations and repayment capacity

It is important to have a regular income source while applying for a personal loan.

What can I use my personal loan for?

Personal loans in India are not monitored by banks and can be used for any financial need that an individual sees fit. You could use it to buy the latest smartphone, for your marriage or even for a health emergency.

What are the personal loan rates in India?

Typically, the interest rate varies from 10.8% to 12% but often there is room for negotiation. You should talk to your loan provider to get the best interest rate for yourself.

How long is the loan sanctioned for?

Personal loans are sanctioned for a minimum of one year and a maximum of five years depending on the principal amount. Once the loan is sanctioned, the bank takes about a week to transfer it to your account.

How much can one borrow?

Individuals can borrow a minimum of Rs. 30,000 and the maximum amount typically is linked to their income level and capacity to repay. A higher credit score can also play an important role in helping you secure higher personal loans in India. Financial obligations and liabilities also play an important role in determining the maximum amount of loan you can apply for.

Can one opt for a co-applicant?

Yes, personal loans can be taken along with a co-applicant like your spouse of parents. If you opt for a co-applicant then their income level, credit history and so on also become a factor for the banks to determine the amount of loan you are jointly eligible for.

From which bank/financial institution should one borrow?

It is good to compare the offers of various banks before you settle on one. Some key factors to consider when deciding on a loan provider include interest rates, loan tenure, processing fees, etc.

How should I choose a loan provider?

There are several factors that you should consider while choosing a loan provider:

i)Interest rate

ii) No. of EMIs

iii) Repayment period

iv) Processing fees which is non-refundable and typically is 1 to 2% of the principal.

v) Prepayment options as certain loan providers have conditions associated with pre-payment. Banks may also charge a foreclosure charge of 1% to 2% of the principal.

Important documents required for a personal loan application?

You should have the following documents ready when you are applying for personal loans in India:

  • Income proof with salary slips and recent ITR documents
  • Address proof
  • Identity proof which could be your passport, Aadhar card, driving license or voter id card
  • PAN card
  • Details of any prior loans
  • Credit score

Quick tips to keep in mind before applying for personal loans in India

  • Always calculate all your financial obligations in the foreseeable future before applying for a personal loan
  • Avail personal loans for important issues only and don’t go overboard with the loan amount
  • Read the loan agreement carefully to find out any hidden charges
  • Carefully understand the process of deferment of a loan payment and understand the penalties associated with it
  • Make plans to repay your loan in a timely manner as defaulting may have long-term consequences on your credit score.

That’s all from me. Do let me know if you have any questions on personal loans in India. Always remember to read the fine print carefully before going for your loan.

Please note: This is a sponsored post. You are advised to use your discretion before applying for a loan. If you have any questions, please comment and I will be happy to answer them. 🙂

How to plan and reach your financial goals?

Financial goal
How to plan and reach your financial goals?

We all have dreams that we would like to fulfil one day and financial goals that we would like to achieve. For some, it is owning a house or providing their children with the best education possible. For others, it could be travelling around the world. These dreams will come true when we are financially secure and have the freedom to follow our hearts. In order to achieve this, it is important to list your financial goals and grow your money to its full potential. While a life insurance or a ULIP (Unit-linked Insurance Plan) is always a great idea, you need to first understand the best way to plan your financial goals.

Planning financial goals

Before you plan your financial goals, it is important to identify your spending patterns, make a note of expenses that can be foregone and plan ahead on how you can save more money.

The three important steps to plan your financial goals are as follows:

i) Understanding your risk appetite and risk profile

Your dependents, your age, your monthly expenditure, your current financial commitments (including loans) form your risk profile. Your risk appetite is your willingness to expose yourself to high risk (eg: small-cap funds) and low-risk investments (eg: Fixed deposits) which bring different yields in the future.

ii) Classify your goals

The second step is to make a list of your goals and prioritize them. Classify your goals into critical, essential and nonessential. Further classify the goals into short term, medium-term, and long-term goals. Your travel plans can come under short-term goals whereas planning for your retirement would be a long-term goal.

iii) Estimate investment size

Once you have your list ready, the next step is to make an estimate of the amount of money that needs to be allocated to your goals. For your long-term and medium-term goals, it is important to keep inflation in mind.

How to reach your financial goals?

Once you have identified your financial goals, the next step is to begin working on a planned investment strategy. Follow these steps:

i) Asset allocation: Your asset allocation strategy would depend on the duration of your financial goal.

  – Short term goals: Savings account, Liquid Mutual Funds, Recurring deposits and short-term fixed deposits are some of the investment products that are recommended for your short-term investment goals. Fixed maturity plan mutual funds or short-term debt funds are other options.

 -Medium Term goals: Debt oriented hybrid schemes and equity-oriented balanced funds are instruments that provide steady growths for your medium-term goals. The returns may not be exceptional but there is good growth and low risk.

 -Long-term goals: ULIP and equity mutual funds are recommended for your long-term goals. Life Insurance cover is also recommended to keep your family protected in the long term.

ii) Monitoring your financial investments

Your work doesn’t end once your investments have been made. It is important to keep track of the growth of your investments. Make time every quarter to carefully go through your portfolio and make the necessary changes.

iii) Revisiting your financial goals

As the years go by, the needs of your family may change, too. It is important to revisit your financial goals every three years to ensure things are going on track. Don’t hesitate to change your financial goals if the need arises.

I would like to end by introducing you to Aegon Life Insurance: It launched its pan-India operations in July 2008 with a vision to be the most recommended new age life insurance Company. Aegon is one of the world’s leading financial services organizations (providing life insurance, pension plans, and asset management) and Bennett, Coleman & Company (India’s leading media conglomerate) have come together to launch Aegon Life Insurance. This joint venture adopts a local approach with the power of global expertise to facilitate a direct to customer approach, leveraging digital platforms to bring transparent solutions to customers and to prioritize their needs.

Please note: This is a sponsored post. You are advised to use your discretion before investing. If you have any questions, please comment and I will be happy to answer them. 🙂