Most people spend the prime of their life working hard to earn money for their immediate goals and saving for a financially secure future. A few fortunate ones happen to suddenly receive a huge sum of money – the most common sources being by winning a lottery, settlement of some legal suit, inheritance or selling off some ancestral land.
Such unexpected windfall gains are not easy to deal with, especially emotionally and require careful planning.
Shriram City Union Finance, an NBFC, has come out with a secured NCD issue which is open from 12th Sept – 26th Sept 2012.
What are secured NCDs and how safe are they?
NCDs stand for Non-convertible debentures are debt instruments issued by corporates and NBFCs (Non Banking Finance Companies) and they are secured by a charge against the companies’ assets. This means that in the event of liquidation of the company, the claims of NCD holders will be given preference over the unsecured asset holders like the share holders.
“Don’t put all your eggs in one basket”
This is an old proverb which has been used over the years in all contexts including investments. Its applicability to your investments is not just about diversifying your portfolio by investing in various asset classes. What is more significant is the fact that these asset classes are not perfectly positively co-related to each other and their volatility and returns are driven by different market factors.
To understand this better let us consider the four main asset classes an investor usually invests in-
Equity, Debt, Gold and Real Estate
Equity and Gold – They are known to be negatively co-related to each other. During the secular downtrend in equity markets during the period 2007 – 2009, most equity investors lost money on their equity investments but gold prices went up significantly. Hence an investor with an exposure to both equity and gold in this period would have fared much better than someone who invested only in equity.
Equity and Debt – Though in the long run an equity market’s growth represents the country’s economic growth, they tend to be volatile in the short term, while debt markets even out this risk with their steady and consistent returns. Historically there have been periods where equity and debt have had an inverse relationship. When the dotcom bubble burst and the stock markets hit an all time low in 2000-2001,interest rates in India were on the higher side – in the range of 11%-13 % p.a.
Real Estate – Real estate has a very low co-relation with stocks and hence is an important avenue for diversification after the required exposure to stocks. Real estate has an inverse relationship with interest rates. Low interest rates in the economy boosts real estate investments. Hence during such periods, an investor who is mainly exposed to debt may not be able to beat inflation, but an investor who has invested in both will witness a rise in the value of his real estate investments which will compensate for his low yielding debt portfolio.
Hence not putting all your eggs in one basket and prudently distributing your investments among these asset classes ensures that whatever be the economic scenario, you will never end up with a situation of all your investments performing poorly.
The type of taxes and their rates applicable on the profits earned on investments in mutual funds depends on the type of mutual fund scheme.
An equity-oriented mutual fund scheme is one where at least 65% of the assets are invested in equity shares of companies.
A debt-oriented mutual fund scheme is one which invests primarily in debt and money market instruments and the equity exposure is less than 65 %. Examples of debt-oriented mutual funds are money market mutual funds, liquid schemes, bond funds and income funds.
During the course of my profession, I come across quite a few Non Resident Indians who are quite clueless about the tax treatment of their Indian investments and income and whether they have to file returns in India too. This article is for them.
Who is a Non Resident Indian?
An individual is considered a Non Resident Indian in a particular financial year if he does not satisfy one the following two conditions which are required to be a resident of India-
Stays in India for 182 days or more in the previous year.
Stays for at least 60 days in the previous year and for 365 days or more in the preceeding four years.