Friday, September 22, 2006

Pay anyone online with Wallet365.com

Wallet365.com, brought to you by TimesofMoney Ltd., is an online payment system with a vision to provide value, convenience, transparency and security in all online transactions.
Wallet365.com is a revolutionary new online payment service that lets you pay anyone, anywhere. It lets you shop online and even receive money. Wallet365.com is absolutely safe, instant and convenient. All you need is an email ID. It secures you from the dangers of online credit card fraud.
Uses of Wallet365.com

  • Send money online to anyone
  • Receive money online from anyone
  • Make online payment to businesses
  • Pay for online shopping

Key Features of Wallet365.com's online payment service

  • Safe and Secure to use
  • Financial details are protected
  • Beyond Accepting Credit Card Payments
  • Use any bank account
  • Instant online money transfers
  • Free Sign-Up
  • Secure internet payment gateway.
Sign up now for a secure Wallet365.com account.

Depositors opting for Short term plans

Depositors are increasingly changing tack on bank deposits — there is a slow shift in the maturity pattern of deposits they are opting for. Parking money for 2-5 years on assured returns is a thing of the past. Instead, depositors are opting for shorter tenor bank deposits.
An analysis of the latest RBI figures on maturity pattern of deposits shows that in FY’05, about 63% of the deposits mobilised by commercial banks was for a period of up to two years while only 37% of the deposits was for longer periods. It was 28% and 72%, respectively, in FY'90. Between 1989-90 and 2004-05, the share of shorter tenor deposits have more than doubled while the share of longer tenor deposits have almost halved.
Bankers say the trend is stronger in urban areas as is reflected in the recent efforts in deposit mobilisation by some public sector banks. Of around Rs 1,000 crore each raised by Union Bank and Bank of India this fiscal, 80-90% was from smaller towns and rural areas, according to bank officials.
Besides, the savvy urban depositor is now well aware of the uncertainties associated with market-related interest rates, which started looking southward since late '90s. Also, depositors have seen many commercial banks fail in the recent past, which have further made them unsure of locking in savings for a long period.
Changing market realities on various asset price cycles and other unforeseen contingencies have also added to consumer concerns . This is adding to the desire to remain liquid.
Besides, corporates who have emerged cash-rich over the years due to better financial management park funds in short-term deposits, more as a stop-gap arrangement till better investment opportunities emerge. A back-of-the-envelope calculation indicates that households comprise only a small portion of term deposits mobilised by commercial banks. Bulk of the deposits is held by corporates and other entities.
From banks’ perspective, this might not be a healthy development for their asset liability management, as bulk of their loans are for longer tenors. Even the shorter tenor personal loans are normally for a minimum period of five years.

Get more information

Eliminate Credit card debt

A poor credit history can make it harder for you to rent an apartment, buy a car, or fulfill a dream. It is important to know how credit can change your spending power and how you can recognize the danger signs of credit and avoid serious problems.

The problem arises when people tend to use their credit card for almost every expenditure from grocery, accessories, entertainment to children's toys. Soon they find themselves facing a severe cash crunch, unable to pay back their card dues, and forced to borrow from friends and relatives.

There are several people out there who use their card like there's no financial tomorrow. Don't forget that as soon as you roll the bill over, the interest clock starts to tick.

Warning signs

Your card does not give you credit for free. And once you allow the outstandings to pile up, the sum can pose as much danger to your financial security. It's the same old addiction thing. You can get as addicted to irresponsible spending as you can to drugs or alcohol.

So, first admit that there's a problem. The symptoms are easy enough to detect: huge credit card statements, plenty of unused clothing and gizmos, a wallet full of ATM receipts and charge slips and, the worst, a savings bank account with no savings.

Credit cards can reduce your future buying power if you carry a balance and let finance charges build up.

You are in trouble if:

  • You reach for your card automatically when you don't have cash.
  • The monthly statement you receive has several expenses you could have avoided.
  • You pay just the minimum due on your credit cards each month.
  • You use the cash advances facility regularly, often to pay off other debts.
  • You use one credit card to pay off the bills on another card.

If one or more of the above apply to you, you are headed for serious trouble. Still not convinced? Calculate the sums you paid over the years in credit dues, interest and late payment fees: they will add up to a fortune.

How can you get rid of your credit card debt?

Financial freedom can be yours if you exercise some willpower and take a few basic steps to eliminate debt.

  • The first thing to do is get all your credit card bills together. For each account, write down the total balance and the minimum monthly payment required. Prioritize your repayment.
  • The next step is to be sure you can make the minimum payments on your credit cards. Look at your spending and make cuts where you can to find the money to pay your credit card bills.

  • Call the bank today and ask for a lower credit limit. Once that's done, you won't be able to charge as much on your card, and will be forced to use it only when absolutely necessary.

  • If you have already used your card to the hilt, keep lowering the limit as and when you pay off the balance. Also if your interest liabilities are huge, consider transferring your balance to a low-interest card. The difference of even half a basis point in interest can save you a few thousand rupees in payments.

  • Make it a priority to pay off your credit card bills. If need be, use your savings to bring your outstandings to zero. Once you eliminate the debt, make sure you pay your card dues in total each month.

  • Don't put off settling your dues for another day. The more you delay, the more the bills will mount. 'Decide How Many Credit Cards You Need' and 'Decide How Much Credit Is Too Much.' Choose strategies to cut your debts as soon as possible.

  • Pay off cards with the smallest balances first. Paying off cards with small balances gives you extra money to pay on the bigger balances. Once you pay off a bill, next month add the amount you have been paying to the check you write to your remaining creditors.

For example, let's say you pay Rs 350 a month on your Citibank account. Once it's paid off you can start adding Rs 650 to the check you write to pay your ICICI account. Then when you've paid off your VISA, add that amount, including the Rs 350 from the Citibank account, to the check you write to pay your MasterCard account, and so on until all the accounts are paid in full.

  • Stop making new charges. If you have to, cut up your cards, hide them, or lock them in a drawer. The key to sticking to your credit card debt repayment plan is to stay flexible.

  • If you find that you set unrealistic spending limits in the beginning, revise your spending plan the next month. Find one or two low-rate cards and cancel all the others. Switching from a high-rate credit card to a low-rate card can easily save you Rs 20,000 or more a year.

  • Carry just what you need. Most people need only one or two credit cards one for purchases they pay off each month, and another for emergencies (or business purposes). Any more than that is usually overkill.

  • Get some free stuff. If you're going to use it anyways, why not get something back for your trouble? If you consolidate your spending on one card, consider getting a 'rewards' card where you earn miles, stuff, or cash back on your spending. Look for a card that will award you stuff you'll actually use.

  • Cash is usually a good option. Still, don't let your spending get out of control just so you can get a free travel bag or a few extra airline miles.

Get more information

Tags: credit card, credit card debt, eliminate credit card debt, atm, charge slips, savings, statement

Thursday, September 21, 2006

Hybrid cars for the future?

In 2005, Toyota increased production of its Prius hybrid to keep up with the demand for the model, and the automakers' 2007 Camry Hybrid sold 4,268 units in June.

In comparison, the non-hybrid Hyundai Sonata sedan -- one of the top 20 best-selling cars in the U.S. -- sold 11,739 units.

Though the numbers are coming closer to one another and hybrid sales have generally doubled every year since 2000, hybrids represented only 1.2% of total vehicles sold in 2005.

Sure, hybrids are gaining in popularity, but when it comes to all the promises -- ubiquity of energy-efficient vehicles, lower costs over time, and environmental-friendliness -- are hybrids living up to their hype?

Hybrids for all

Despite hybrids' promise of improved gas mileage and lower emissions, hybrids are likely to constitute only a modest portion of all vehicle sales for the foreseeable future, according to a January report from J.D. Power and Associates.

Analysts anticipate that by 2012, hybrid sales volume will have grown from 212,000 in 2005 to 780,000 -- but hybrids will still only represent 4.2% of the overall market.

One explanation for the hybrid's lag behind non-hybrid vehicles is automakers' inability to keep up with the demand. Toyota, the top-seller of hybrids, recently had a waiting list of up to six months for its Prius model. Meanwhile, Honda continues to evaluate its manufacturing capacity. "We are making all we can," said Sage Marie, a spokesman for Honda.

"We continue to adjust manufacturing targets based on demand. Right now the limiting factor is manufacturing capacity."

Savings for whom?

Another reason that hybrids likely have trouble gaining traction in the vehicle market is their cost. Hybrids typically cost $2,500 to $3,000 more than a comparable conventional vehicle.

"It's all about the economics," said Keith Crain, publisher and editor-in-chief of Automotive News. "For hybrids to compete, car manufacturers are going to have to get the costs down."

A federal tax credit, introduced as part of the Energy Policy Act of 2005, offsets some of the initial price differential. The tax credit ranges from $250 for a hybrid pickup like the Chevrolet/GMC Silverado/Sierra to $3,150 for more fuel efficient Toyota Prius. However, once a manufacturer sells 60,000 vehicles of a particular hybrid model, the credit gradually decreases over a period of 15 months until it is discontinued.

Whether hybrid owners can recoup their higher initial investment through savings at the gas pump depends on the model of hybrid they drive and how long they own the vehicle.

"When you factor in the initial investment the average consumer has to have considerably higher mileage to make it payoff. However, if they keep it long enough and they drive it many miles they will in fact save considerably," said Crain.

"Tax credits and absolute financial costs are not the primary issue for people buying a Toyota hybrid," said Cindy Knight, environmental communications administrator at Toyota. "People buying hybrids are concerned about the environment."

Helping environment?

With good design, hybrids can reduce smog pollution by 90 percent or more compared with conventional vehicles, according to The Union of Concerned Scientists. However, not all hybrid vehicle models are equally green.

Burning less fuel releases fewer toxic emissions and there is no doubt that certain hybrid models get substantially better gas mileage than comparable conventional vehicles. The 2006 Toyota Prius gets 60/51 mpg city/highway, which is much better than the 34/40 of the 2007 model of the Yaris, Toyota's smallest compact car.

The 2006 Honda Accord Hybrid, on the other hand, gets 25/34 mpg city/highway -- virtually identical to the 26/34 of the conventional Accord coupe.

While some critics might consider hybrid SUVs the ultimate oxymoron, a vehicle like the Toyota Highlander hybrid or Ford Escape, puts hybrid technology in the hands of people who might not otherwise choose to drive a hybrid. Hybrid SUVs enable people to slightly mitigate their choice to drive a larger car.

"We realized that if we're going to make a difference in terms of dependence on foreign oil and reducing emissions we would have to take our hybrid synergy drive mainstream," said Toyota's Knight. "We want to broaden hybrids' appeal beyond the early adopter or tech fan. We want to appeal to soccer moms and dads."

Gas-electric hybrids are only one among many alternative vehicle designs. Vehicles have been developed that run on various combinations of fuel systems. Biodiesel, ethanol, hydrogen -- even recycled frying grease -- all have potential as fuels.

In 2003, Bush launched a $1.2 billion initiative to help automakers develop a hydrogen-fueled vehicle. Yet, Paul Erickson, a professor of Mechanical and Aeronautical Engineering at UC Davis who studies hydrogen production and utilization warns affordable hydrogen fuel cell technology is still decades away.

"There's no one silver bullet in terms of green technology," said Marie. "We're continuing to substantially invest in research of other green vehicle options."

"Right now we're in the transition period," said Crain. "In the future, we're going to see hybrids, electrics, diesels, methanol-powered and all sorts of multi-fuel systems for automobiles. There's not a single solution."

Get more information

Points to know before taking Car and Vehicle insurance

After working hard and saving up, Pradeep Vazirani bought his dream SUV, last year. He says after his wife, his only love is his car. To be on a safer side, he got his car fully insured.

Unfortunately, his car was smashed in an accident and the back door was completely damaged. But he was quite confident since he remembered his insurance agent's words, "Now your car is 100% insured."

So after a week, he went to the insurance company to make a claim for the loss incurred. However, to his utter dismay, he found out that only 60% of the loss amount would be borne by the company. Whatever happened to the remaining 40%?

What Vazirani was not aware of were the various terms and the hidden clauses mentioned in his insurance papers. He assumed that since his car was fully insured, he would get the full amount of loss.

Policy coverage

For motor insurance, either there is third party policy or package policy. In case of third party insurance, the policy covers the vehicle owner's legal liability to pay compensation for the third party. Damage to you or your car will not be borne by the company. Third party insurance is mandatory for all vehicles.

If your car is fully insured, then, along with the damage to third party, the package policy would cover loss or damage to the insured vehicle and its accessories as well. The loss may be due to any accident like fire, explosion, self-ignition or lightning, burglary, theft, riot and strike, etc. This package policy is not mandatory, though experts recommend it strongly.

Exclusions

All of us know what the insurance policy covers but not many of us know about its exclusions.

Firstly, there is a compulsory deduction that is made when you claim the loss amount. For example, Iffco Tokio deducts Rs 500 when a claim is made. This amount differs from company to company and is meant to protect against petty claims. Other exclusions under the package policies include wear and tear, breakdowns, consequential loss and many more.

However, the most important exclusion, and the one that affected Vazirani's claim, is the damage to tyres, tubes and other nylon, glass and plastic accessories. Damage to tyres and tubes is not paid for unless the entire vehicle is damaged at the same time of accident. Liability is limited to 50% of the cost of replacement.

"Same is the case with any nylon, plastic parts, battery and air bags. For fibre glass components, the company pays only 30% of the cost," says the spokesperson of Bajaj Allianz General Insurance. Vazirani had to pay for the plastic door handle, tail lights that include the break lights as well as indicator. He did not know that the company does not pay for all the parts made of glass and he had to pay for that too.

Also, 15% was deducted on all the steel parts. This, in itself, was a big cost that he had to shell out, in spite of getting his car fully insured. Plus, there was a 10% rate of depreciation for all the other parts including wooden parts, since his car was more than a year old.

Insurance companies attribute this deduction to the rules and regulations that have been laid down by the Motor Tariff.

Officials from Bajaj Allianz say that the motor tariff was made after a lot of research on the kind of claims the companies were getting. Products like tyres, batteries and so on are used everyday and a depreciation value is attached to it.

Therefore, it is extremely important that you read your offer document carefully and be aware of all the hidden clauses like this one.

Along with all these, there are also few details given by V Ramakrishna, managing director, India Insure Risk Management Services Pvt. Ltd., which the owner of the vehicle must take care of:

  • If an insurance company decides to take a spot survey then do not move your vehicle from accident spot till survey gets completed.
  • All replaced parts should be kept for inspection by surveyor and should not be disposed of till the surveyor gives approval for the same.
  • Do not take any action for damaged vehicle before prior-approval of insurance company / surveyor like repairs, movement of vehicle, etc.
  • Never enter into a compromise or make an out-of-court settlement with the injured or legal heirs of the deceased without the consent of the insurers. These compromises or out of court settlements are not payable in terms of insurance policy.
  • Documents to be deposited with insurers include original bill of repairs / replacements, cash memo, payment proof, etc., for finalisation / disposal of claim by the insurance company.
  • Submission of xerox copies of bills / invoices paid is not accepted. Original bills are required to be submitted to insurance company.
  • On approval of claim, arrange to deposit / salvage the damaged parts with the insurers failing which they may deduct the salvage value from the claim amount.
  • Provide co-operation to the advocate deputed by the insurance company.

One has to be very careful while making a claim and should also be prepared to shell out a good amount from his pocket as well. The owner of the vehicle should be aware of all the terms and hidden costs, which Vazirani did not know that led to nothing but disappointment.

Get more information

Monday, September 18, 2006

Investments for tax planning under section 80C

Investments for the purpose of tax-planning (the ones eligible for deduction from gross total income under Section 80C) are no different from conventional investments.

The same degree of effort and planning needs to be 'invested' while tax-planning. Likewise, it is vital that tax-saving investments be made in line with the investor's risk profile; also the tax-saving portfolio should be a well-diversified one.

In the present investment scenario, investors have a wide range of avenues to choose from while conducting their tax-planning exercise. Everything from market-linked instruments like tax-saving funds to small savings schemes like National Savings Certificate (NSC) and Public Provident Fund (PPF) to 5-year bank fixed deposits (FDs), among others vie for the investor's attention. A judicious mix of the above in the right proportion is what the investor must target.

We present a 4-step strategy for conducting the tax-planning exercise.

1. Review your existing investments

The tax-planning exercise can commence with a review of the existing tax-saving investments. For example, PPF accounts and insurance policies/ULIPs (unit linked insurance plans) which run over longer time frames should be put under the scanner.

Investors should enlist the services of an investment advisor and review the utility of such investment avenues. If any avenue has ceased to add value to the portfolio or is a mismatch, then the same should be done away with.

For example, the only insurance instrument in a moderate risk-taking investor's portfolio could be a ULIP (with a nominal sum assured) which invests its entire corpus in equities.

In such a scenario, the investor stands the risk of being underinsured and also being invested in an avenue which doesn't match his risk profile. Such an investor can be a candidate for a portfolio review.

2. Provide for the fixed commitments

The next step can be to compute what the fixed commitments are. For example, for salaried individuals, a statutory deduction like contribution towards Employees Provident Fund (EPF), which is also eligible for Section 80C benefits would qualify as a fixed commitment.

Similarly, premium payments for on-going insurance policies or contributions towards existing PPF accounts would fall under the same category.

The intention is to determine, what portion of the Section 80C deduction (Rs 100,000), the investor can freely invest. Consider an assessee who is required to invest Rs 100,000 for the purpose of tax-planning; he holds an endowment policy wherein the annual premium is Rs 35,000.

In such a scenario, the investible surplus for the purpose of tax-planning would be only Rs 65,000 (Rs 100,000 less Rs 35,000).

3. Get the right allocation

Drawing out a detailed investment plan for the purpose of tax-planning is the next step. The investment advisor should be actively involved at this stage. The investor's risk appetite will play a vital role in determining the allocation to each investment avenue.

Broadly speaking, assured return avenues like NSC and FDs will dominate a moderate risk-taking investor's tax-planning portfolio. Conversely for risk-taking investors, tax-saving funds and ULIPs should be staple diet.

4. Execute the investment plan

Executing the investment plan would be the final step. If tax-saving funds feature in the plan, starting a systematic investment plan (SIP) which runs over the ensuing 6-month period could be a good idea.

By investing over a longer time frame, investors can minimise the risk of mistiming the market. Conversely, investments in assured return schemes like PPF should also be made well-ahead of the due date. Apart from ensuring that the necessary paper work is completed on time, it would also help the PPF investments clock higher returns as compared to deposits made just prior to the due date.

To state that investments made for the purpose of tax-planning can have a huge impact on the overall finances would be an understatement of sorts.

An example will help us better understand this. Rs 100,000 invested annually, over a 15-year period with a return of 10% per annum (considering that assured return schemes offer a return of 8% per annum, this assumption for the composite portfolio is a realistic one), would amount to approximately Rs 3,177,200 on maturity. Few would dispute the fact that there is merit in giving the tax-planning exercise due thought and effort. 

Also check out this article for further information

Performance of HDFC Prudence Fund

HDFC Prudence is one of the oldest and largest balanced funds. It is a consistent ‘above average’ performer not only in terms of returns but also risk-adjusted returns. The ET Quarterly MF Tracker June ’06 classified the fund as ‘platinum’, which is the best classification any fund can get among the balanced fund category of funds. Performance: HDFC Prudence has managed a return of 33.3% in one year till date, while the category managed 25.5%. For three years, the fund managed 40.6% return on a CAGR basis, more than 33% returns managed by the category.
In five years, it managed 43.8% CAGR returns, compared to 30.7% for the category. The fund has given the second highest returns after SBI Magnum Balanced in the past three years. In the last one year till date, its returns remain at the second notch after Canbalance II. Portfolio strategy: It recently increased its allocation to equities. It can now invest in equities in the band of 40-75% of the total portfolio. It now has 75% in equities – the highest among the balanced funds. So the risk-return profile of the fund now is on the higher side.
Investors in dividend options could expect to get dividends on a tax-free basis. Most top balanced funds recently increased allocation to equities to adhere to the new tax norms. Budget ’06 made it mandatory to hold, on an average, 65% of the portfolio in equities to qualify as an equity-oriented fund for tax purposes. It was made effective from June 1, ’06.
The threshold was 50% earlier. Such equity-oriented funds enjoyed exemption from long-term capital gains tax, as well as dividend distribution tax (around 14% for individuals in the case of income funds). So, while investors in the dividend option got tax-free dividends, the investors in growth option redeemed units at NAV after a year without capital gains tax. Today, HDFC Prudence has the highest equity holding in its fund portfolio. As per the latest available portfolio, the fund has 75.2% of its total portfolio in equities.
DSPML Balanced has 68.7%, FT India Balanced has 65.4% and Birla Balanced has 66.7%. Among those which are below the 65% threshold are UTI Balanced (61.1%) and PruICICI Balanced (61.8%). As far as HDFC Prudence’s equity portfolio is concerned, it is currently tilted in favour of mid- and small-cap stocks. Around 60% of the equity portfolio is in mid- and small-cap stocks. Its top five holdings constituted 24.7% of the portfolio and its top 10 stocks, 41.4%. As on August 31, ’06, its top sectors were basic/engineering (12%), FMCG (11.8%) and automobile (11.2%).
On the debt side, the fund has invested at the shorter end in certificate of deposits and non-convertible debentures. With higher interest rates, investment in shorter-end debt securities is the safest investment strategy. HDFC Prudence erstwhile was called Zurich Prudence of Zurich India MF.
The Zurich group exited the fund business in India in ’03 and all schemes, including that of Zurich Prudence, was transferred to HDFC MF. The current fund manager, who is also the CIO of HDFC MF, has been managing the fund throughout his tenure in Zurich India MF and the current stint at HDFC.
For an investor, a constant churn of fund managers is always a concern and for an investor, it is reassuring to know that the best-performing fund manager has stayed with the fund. It is the largest balanced fund in the country with assets of Rs 1,793 crore followed by UTI Balanced (Rs 544 crore) and PruICICI Balanced (Rs 422 crore). The earlier floating of the fund and its consistent good performance ensured that investors put in money to make it the biggest fund.

Get more information from this article.

DHFL Reverse Mortgage for senior citizens

Most people are familiar with concept of mortgage and view certain apprehension. After its literal French translation death pledge,’ as if to convey unsurety of repayment of the Now we have the concept of mortgage. As the name suggests, it’s a reversal of the mortgage concept.
Targeted at senior who have retired and are the age of 60, reverse mortgage an attempt to help those are ‘house rich’, but ‘cash While institutes like the second innings house, of ‘Munnabhai’ may not be accessible to everyone, through reverse mortgage, any senior citizen who owns may get a steady income putting the house on the line. this can be achieved by living his/her own house for the his/her life. first reverse mortgage in India is ‘Saksham’, launched by Dewan Housing Finance DHFL).
‘Saksham’ means and the scheme seeks to enable senior citizens who own but could do with some cash. The foremost requirement for this is that the person be over 60 years of age. he/she should own the ancestral or disputed property will not do. concept is quite simple and contrast to the normal mortgage a home loan, where one money upfront and then back in instalments. In the reverse mortgage, a team company visits the home assesses its appraised value, will be close to the current value. After assessing various factors, a loan to value ratio is arrived at. example, if the property is assessed to be worth Rs 20 lakh, the LTV is 75%. This means that 75% of the value of the property can be given out as loan, which is Rs 15 lakh.
The tenure of the loan can be decided by the customer, but has an upper limit of 15 years. So the person is paid this loan in instalments, decided by him/her. After the individual’s death, the house is taken into the company’s custody and it realises this loan value, along with the interest on it, by selling the house. However, if the individual’s wife outlives him, she can stay there for the rest of her life as well. (The same goes for the husband too). Also, if the applicant outlives the tenure of the loan, he/she can continue living there as long as he/she is alive, but he/she stops receiving the monthly instalments.
However, the interest keeps getting added to the loan amount. In case the value of the house appreciates during this tenure, the company pays the excess amount, after getting its loan and interest back, to the legal heir of the customer. Considering the above example, if a house worth Rs 20 lakh is worth Rs 25 lakh after 15 years, the balance — after the loan of Rs 15 lakh, along with its interest is deducted — is paid to the legal heir. The rate of interest at present is 12%.However, in case the property depreciates in value, the loan amount will be adjusted accordingly.
Reassessment procedures are conducted every three years. But company sources claim that a plan to not cut down the loan is in the pipeline. In a country that offers no social security, reverse mortgage is a positive step towards helping senior citizens. However, it should be kept in mind that the income one gets from this may not be substantial, unless one owns a very expensive house in a plum real estate locality. DHFL plans to launch the scheme in Mumbai initially and make it national in due course.

Get more information from this article

Safe Investment ideas for senior citizens

A senior citizens savings scheme is available in the market. Individuals above 60 years can invest in this scheme, for which the rate of return is 9%. The amount under this scheme is payable every quarter, and its validity is five years. A tax is deducted at source for the earnings from this scheme, unless the individual submits the required forms to the financial entity where the account is opened.
This scheme performs the functions of generating income, as well as securing capital.Debt funds offered by MFs can be used to achieve a particular objective related to the debt part of your portfolio. Various debt funds are available, ranging from liquid funds for the short term, to income funds for the medium to long term. For example, if you want to invest a large sum for a week, then liquid funds will meet your requirement. If you expect interest rates to fall, then longterm income funds will meet your requirement. However, there is no guarantee of any return or safety of capital in debt-oriented funds. Capital guarantee funds will soon make their presence felt in India. This is likely to change the situation for investors on the capital protection front.

The Theory of Investing money

People may go out of their way to save Rs 5 on purchase of goods worth Rs 25, but won’t go to the same trouble to save Rs 5 on purchase of a CD worth Rs 500. Change in wealth appears to be more important than the ultimate value.
Amos Tversky and Daniel Kahneman found that people are willing to take more risks to avoid losses than to realise gains. People tend to ignore ‘sunk costs’ and dislike accepting losses. A familiar problem with investments is the sunk cost effect — the tendency to ‘throw good money after bad’. People have such a dislike for incurring losses that many are willing to accept gambles in the hope of avoiding them. Imagine that someone had bought shares of ‘XTech’ before the tech bubble burst in ’00. The market price is now a lot lower than the price paid and the investor is facing a significant paper loss. But he/she is unlikely to sell the shares because that will involve ‘crystallising’ the loss. The past is irrelevant; all that matters is the future.
The key question is: which investment offers the best potential for gains? If the answer isn’t XTech shares, they should have been sold, and what’s left of the investment should be swept into the best options available. The status-quo bias is another trap. A study conducted by William Samuelson and Richard Zeckhauser provides an insight into our reluctance to change when dealing with financial issues.

A group of students were asked how they would invest a hypothetical large inheritance. Half of them received their inheritance in low-risk bonds and the rest received higher-risk securities. Common sense suggests that individuals will reassess their asset allocation based on their risk profile and timeframes, but both groups chose to leave most of their money alone. Students’ fear of switching into securities that may end up losing value prevented them from rebalancing their portfolios.
Herding instinct is another bias. Human beings are social creatures and draw comfort from being in a group. Due to ‘irrational exuberance’, investors invest large sums of money in select sectors/ stocks, without paying heed to one’s asset allocation and risk tolerance. This leads to buying of securities at near-peak prices and selling of securities in a downturn. Success in the investment world depends on the decisions one makes. But people tend to get carried away by the moment and end up making bad decisions.
Behavioural economics does not suggest that human beings are irrational; it indicates that not all our actions are rational because the human mind has limited capacity to store and process information. We rely on simple thumb rules (or ‘heuristics’) which serve us well, but lead us into consistent errors. Success in investing lies in being aware about these pitfalls and trying to overcome them. In other words, keep emotions out of investing.