October 2011 – Page 2

Best Senior Citizen Fixed Deposit Interest Rates

There are some pretty good fixed deposit interest rates on offer for senior citizens right now. The highest rate is Lakshmi Vilas Bank’s 10.75% for a deposit of 1 year to less than 2 years, and that’s followed by Yes Bank’s 10.60% for a 480 day deposit.

There are at least 20 banks that offer more than 10% to senior citizens and they range from a period of 1 year to 3 years. So, there is a good chance that there is a bank somewhere close to you that offers a pretty good interest rate.

I created this list by primarily looking at the list of my regular best fixed deposit accounts, so I won’t be surprised to see that there are more banks that offer more than 10% but aren’t included in this list.

If you know of any – please leave a comment, and I’ll update this list.

S.No.	Bank	Tenure	Interest Rate
1	REPCO Bank	22 months	Â Â 11.00%
2	Lakshmi Vilas Bank	1 year to less than 2 years	10.75%
3	Yes BankÂ	480 days	10.60%
4	South Indian Bank	300 days	10.50%
5	State Bank of Travancore	500 days	10.50%
6	Dhanalaxmi BankÂ	300 days	10.50%
7	City Union Bank	1 year to less than 2 years	10.50%
8	Tamil Nadu Mercantile Bank	1 year to less than 2 years	10.50%
9	Axis Bank	1 year to less than 14 months	10.40%
10	Indian Bank	9 months to less than a year	10.25%
11	IDBI Bank	500 days	10.25%
12	Corporation Bank	12 months	10.25%
13	Karnataka Bank	1 year to 2 years	10.25%
14	Punjab and Sind Bank	500 days	10.25%
15	State Bank of Patiala	999 days	10.25%
16	Karur Vysya Bank	1 year to 3 years	10.25%
17	Syndicate Bank	250 to 364 days	10.05%
18	ICICI Bank	990 days	10.00%
19	Indian Overseas Bank	1 year	10.00%
20	Federal BankÂ	1 year	10.00%
21	J&K Bank	2 years to less than 3 years	10.00%
22	Kotak Bank	700 days	10.00%
23	Andhra Bank	1 year	9.90%
24	Bank of Baroda	444 days	9.85%
25	Vijaya Bank	2 years to less than 3 years	9.85%
26	Bank of India	555 days	9.75%
27	Canara Bank	1 year	9.75%
28	Dena BankÂ	1 year

I had attempted to create such a list earlier as well but couldn’t keep it current for long, however I’m more optimistic about keeping this list current now because I have all the links in place, and I only look at the highest senior citizen interest rate which makes the process of data gathering a little easier.

Update: Added REPCO bank at 11% and corrected Axis Bank t0 10.40%. Thanks to Â Prakash and Sanjay for pointing that out.Â

ICICI Pru iAssure Single Premium Plan Review

ICICI Pru iAssure Single Premium Plan is a product that lets you pay only one insurance premium, and in return gives certain guaranteed returns as well as provides a life cover.

The iAssure plan is covered under section 80C, and while the brochure says the deduction amount is limited to 20% of the sum assured – I think this is another way of saying the amount of the premium you pay will be eligible for deduction.

I think the 20% figure comes from the fact that you can either get 125% of your premium as sum assured, or you could get 500% of your premium as sum assured.

This is an important point, and if you happen to buy the policy you should confirm with the people who are selling this.

This plan doesn’t get any tax benefit under section 10(10D).

ICICI Pru iAssure Single Premium Life Cover

This policy gets you a life cover and that depends on your age. If you are less than 55 years of age then the policy gives you a life cover of 5 times the premium, and if you are more than 55 years of age then the policy covers only 1.25 times the premium.

You can’t take the policy if you’re 80 or older and the policy comes with two maturity periods – 5 and 10 years.

You should be at least 18 years of age when the policy matures so based on the policy you take – you should be either 10 or 13 years of age.

The minimum premium is Rs. 20,000 and while I didn’t see any mention of a maximum limit – since one of the key characteristics of this plan is that you get 80C benefits – I think it will probably not make sense to take a premium that makes you go over the limit.

ICICI Pru iAssure Single Premium Guaranteed Maturity Benefit

At the time of maturity you get an amount which they call the guaranteed maturity benefit. The guaranteed maturity benefit is a number / factor that’s multiplied with your premium to decide how much money you will get at maturity.

This number / factor depends on the following things:

Maturity term: Other things being equal the factor will be higher for a ten year maturity period than a 5 year one.

Age: They have 3 different slabs for age – completed 35 years, 45 years and 55 years, and the younger you are – the higher is the factor.

Premium: The premium you pay also affects the factor – and the higher the premium – the better it is.

Reference Rate: They calculate a reference interest rate based on the prevailing interest rate, and the higher the rate – the better it is.

They must have some tables, or an equation of some sort that uses all these factors and gives you the factor to multiply the premium, but I couldn’t find this on the website.

So, you will need to ask about this factor if and when you purchase the policy. The brochure did have an illustration so let me take that as an example here.

Premium: Rs. 1 lakh
Entry Age: 35 years
Term: 10 years
Reference Rate: 6% or 8%

The document shows that for this kind of policy the guaranteed maturity benefit will be Rs. 1,47,000 if the reference rate is 6% and Rs. 1,79,000 if the reference rate is 8%. Now, keep in mind that I don’t know if the current reference rate is actually 6% or 8% or a number lower or higher.

The next step is to see what rate of return you need to get to this amount yourself. I find that you need 4% compounded yearly to generate about 1,47,000 and 6% compounded annually to generate Rs. 179,000.

These returns look quite similar to the ICICI Guaranteed Savings Insurance Plan we looked at yesterday, and when I think about these two plansÂ – the thing that strikes me is that in this plan you have to pay the premium only once a year so you know that you will get the 80C benefit. Under the other plan, if Direct Tax Code kicks in then you may not get any tax benefit at all.

Also, in this plan you know the guaranteed maturity benefit well in advance so at the time of talking to them you can ask them what the numbers are at various premium levels.

Then you can easily compare that maturity benefit to how much return you need to generate on your own and find out if this interests you or not.

ICICI Guaranteed Savings Insurance Plan Review

This is another post from the Suggest a Topic page, and today I’m going to look at some features of the ICICI Prudential Guaranteed Savings Insurance Plan.

The ICICI Pru Guaranteed Savings Insurance plan is an endowment life insurance plan, and it gives you life insurance cover plus a certain amount at the maturity of the plan.

This plan falls under Section 80C tax saving schemes which means the premium payable will be applicable for deduction from your taxable salary under section 80C.

I find that the easiest way to explain how this plan works is to take an example of one option with certain figures and go through it. Let’s use the same example that they use in their benefit illustration page.

Let’s say you choose the 15 year term policy and decide on a premium of Rs. 25,000.

First thing to keep in mind is that in this option you have to pay premiums for the first 7 years, but you get the money at the time of maturity which is at the end of the 15th year. The good part about this is that your insurance cover lasts for 15 years as well.

So, how much is the insurance cover?

Insurance Cover = Annual Premium x Number of Premiums

In this case – 25,000 X 7 = Rs. 175,000.

From the sample term insurance post – you know that this is not much and you can get a cover of as much as Rs. 50 lakhs with an annual premium of Rs. 5,000 or so.

However, this is one benefit you do get – so keep that in mind.

Now, the next and slightly trickier part – how much money do you get back?

You will get your money back at the time of maturity so in this case at the end of 15 years, and they have split how much you get in three buckets.

Premium Payment: This is simply the sum of premiums that you have paid, so your own cash, and this forms part of the guaranteed payment they talk about.
Regular Additions: Every year, they will declare a certain percentage of the sum assured that will be added to how much you receive back from them. From the past numbers – I see that this is around the 4% mark, so in our case 4% of Rs. 1,75,000 or Rs. 7000 will be added to what you get at the maturity. This will be added throughout the term of the policy, so in our case – 7,000 x 15 = Rs. 1,05,000. This is also part of what they consider the guaranteed payment. So, the guaranteed total is Rs. 1,75,000 + Rs. 105,000 viz. Rs. 2,80,000.
Maturity Benefit: On top of the two amounts above – they will also give you a maturity benefit, but this doesn’t fall under the guaranteed category. I think this means that they are not obliged to pay this amount, however in their illustration they have shown this to be Rs. 74,292.

If you sum up these three amounts – you will get a value of Rs. 3,54,292.

So, under the ICICI Guaranteed Savings Insurance plan, if you were to pay Rs. 25,000 for 7 years, you may get Rs. 3,54,292 according to the illustration that they have shown. Note that the only number that you can be certain of in this calculation is the premium because that’s an absolute, and they will return that.

For the Regular Additions amount – they will pay you a percentage that’s at least half of the 10 year G-Sec and so far that’s hovered around the 4% mark, and from their documentation I couldn’t find anything about the maturity benefit, but at least for this illustration they have used the same rate as the regular addition so let’s just assume that you will get that.

Now, that I have this number – I want to know at what rate should I invest my money myself to reach this target. Let’s choose a conservative number and say that I can only grow my money at 6% per year.

Now, I use the compound interest calculator at MoneyChimp and find out that if I were to invest Rs. 25,000 every year and grow it at 6% – at the end of 7 years I will have about Rs. 2,20,000.

I also used the RD calculator to see how much I will get if I were to get a recurring deposit for 7 years with Rs. 2083 (25,000 / 12) every month for 84 months (years) and that gives me about Rs. 2,16,000.

So, let’s say using these conservative numbers you invest your money for 7 years. Then take Rs. 2,20,000 and do a fixed deposit at 6% for the remaining 8 years. The same calculator shows that I will get about Rs. 3,50,000 at the end of the term.

This shows me that even this conservative interest rate of 6% earns you enough to match the returns indicated by the ICICI Prudential Guaranteed Savings Plan, and in my opinion a cover of Rs. 1,75,000 is not a big enough amount to sway your decision.

Having come this far – the last thing to see is what happens if you want to cancel the policy mid way because that seems to happen a lot.

The brochure says that if you pay the premium for at least 3 years then the policy acquires surrender value, which I take to mean that if you cancel before that time period you don’t get anything at all.

Then to calculate the surrender value – you have to see the higher of the two:

Guaranteed Surrender Value: This is 35% of the base premiums paid minus the first year premium. So if we go back to our example and say that we want to cancel after the 4 installment. Then 35% of 1,00,000 is Rs. 35,000 and if you reduce the first premium from that then you are left with Rs. 10,000 only.
Non Guaranteed Surrender Value: This is the present value of the paid up sum assured discounted at the gross redemption yield at the review date immediately preceding the date of surrender, plus 2% annum. Quite frankly, I don’t know how to calculate this or even what this means, I can only hope its close to the money you have already paid but that’s probably not how it is.

I’ve covered all the features that caught my eye, and tried to be as comprehensive as my understanding permitted. If you’ve come this far going through the whole article – the decision makes itself.

If you see any inaccuracies or mistakes in understanding then please let me know, and of course as usual everything that you have to say is welcome.

Sensex ETF and Index Funds List

After creating the Nifty Index Funds list, it was only natural to create a Sensex ETF and Index Fund list. For some reason, there are a lot less Sensex funds than there are Nifty Index funds.

I could only find a couple of Sensex ETFs, and 5 Sensex Index funds as opposed to over 15 Nifty Index funds.

Of these funds, Franklin Sensex fund is the biggest with about Rs. 58 crores in asset under management, and Kotak is the next with Rs. 36 crores, LIC has 25 crores, and after that all of the funds are fairly small.

Here is a chart that shows the asset under management of these Sensex funds and ETFs.

It’s clear from the above chart that Nifty Index funds are a lot more popular than Sensex funds and the biggest Sensex fund – Franklin doesn’t even have a tenth of the assets that the biggest Nifty fund GS Nifty BeeS has.

Now, here is a chart that shows their performance in the last 3 years.

Kotak is the best performing of these funds, and even when you look at the one year return data it has fallen less than the other funds. That combined with the fact that it has a low expense ratio of 0.50% makes it a good option among these funds.

Here is the table that shows the 1 year returns, 3 year returns, AUM as well as expense ratios of all these funds.

S.No.	Mutual Fund	1 Year Return	3 Year Return	AUM (In Rs. Crores)	Expense Ratio
1	SENSEX Prudential ICICI ETF	-15.34	15.01	0.99	0.80%
2	Kotak Sensex ETF	-15.8	15.08	36.08	0.50%
3	LIC Nomura SensexÂ	-16.46	13.77	25.27	1.37%
4	Reliance Index Sensex	-17.12	—	2.69	0.40%
5	HDFC Index Sensex	-17.06	15.01	0.99	1%
6	Tata Index Sensex – A	-16.75	13.4	5.55	1.50%
7	Franklin India Index BSE Sensex	-16.31	14.21	58.64	1%

Looking at these numbers, and data I feel that if I had to take a position in a Sensex fund – I would get into the Kotak Sensex ETF, but then if I had to take a position in an index fund at all – I’d probably choose a Nifty Index ETF or fund rather than one on the Sensex because of the higher liquidity and volumes on those.

Section 80C Tax Saving Instruments Infographic

The tax filing season is closing in on us, and you don’t want to leave everything down to the last minute. There are still a few months left, and if you haven’t already started planning for your taxes – now is a good time to start.

I’m going to start a series on tax saving instruments here, and every week I’ll try to write at least one post on a tax saving topic.

This week, I start off with an infographic I created with the hope of giving an overview on the various tax saving instruments especially 80C instruments in an easy to digest and graphical manner.

I hope this provides a good overview on the various instruments, how much they save and their lock in period.

I was a little wary of including returns because they can vary so much, and it is natural to compare one with the other but that’s not right since the risk profile of the instruments is different.

Please let me know if you see any mistakes, and also if you want to see any other information on this.

Please share it with friends and colleagues if you think this will be beneficial to them, and as usual I look forward to your comments!

Socialist Wall Street, Firing Customers and Penny Wise Investors

Hemant wrote about being penny wise and pound foolish, and the example he took in his article completely amazed me. I re-read what he wrote twice to make sure that I understood it correctly, and even before writing this here I went to the site to double check whether I made a mistake in understanding what he said.

Apparently there was this lady who commented there saying her husband lost Rs. 7 lacs in day trading, but one of her questions to Hemant was how she could save the commission that’s paid to a mutual fund agent!

I don’t mean to be overly critical of anyone but if someone is in this kind of a situation and if that’s the type of questions they are asking – then they are in serious need of good advice, and should seek help before blowing off more of their money.

Moving on, the stock market has seen incredible volatility in the past few weeks, and the sudden up-move in the past few weeks has surprised a lot of people including me.

On 23rd September the Sensex had fallen by about 700 points, and since that time the Sensex is up by 700 odd points or so.

That’s hardly any movement at all – but what a heartburn it has given people! Along with the volatility – the Occupy Wall Street movement has also garnered a lot of attention and at least I’m quite surprised by how resilient this movement has been.

I really liked this one piece on the movement – Socialism on Wall Street, and quite agree with the conclusion that capitalism is the best economic system to date.

Nouriel Roubini is looking for sellers for his loss making firm, and for a change this was something that didn’t surprise me. If you keep predicting the same thing – you’re bound to be right some day, and while that may earn TV appearances and fame – it quite certainly doesn’t earn consistent profits.

Seshu shared this great website that helps you find fixed deposit rates, and it looks like it’s quite a useful little tool.

Finally a very good post about customer segmentation, and when it makes sense to fire some of your customers.

Enjoy your weekend!

HDFC Gold Fund Review

It’s raining gold fund of funds these days, and the latest to throw their hat in the ring is HDFC mutual fund.

I recently reviewed the SBI gold fund, and this is exactly like that except that it is from HDFC, and being from HDFC it will own gold ETFs from HDFC.

I wouldn’t have written about the HDFC gold fund had it not appeared in the Suggest a Topic page, and that’s because all these gold fund of funds are exactly same in nature, and if you change the name then there’s nothing more you need to write about.

So, I’d recommend people who haven’t read the SBI gold fund review to go read that and get a perspective on what’s happening here.

In general, I think a big mistake that a lot of people do is ask the wrong question viz. should I buy the HDFC / SBI or Reliance gold fund or not?

That’s the tail wagging the dog.

The right question (at least in my opinion) is do I want to own gold or not? And if the answer to that is yes – then how do I go about it.

Now, here you have the option of buying physical gold, or buying financial gold. If you decide that you want to buy financial gold then what are the options available to you?

For a long time that used to be limited to a gold ETF or trading gold at the COMEX, which is probably not very well suited to a long term investor, then came along NSEL’s gold and silver series, and finally early this year fund houses got this idea to launch gold fund of funds.

Out of these options what do you choose?

Now when evaluating these options you must keep in mind that a gold mutual fund simply owns gold ETFs from its sponsor family.

I think that must have been a brilliant realization for the fund houses because not only does a fund of fund allow them to boost their gold ETF – it also earns them money while doing it!

That’s because all ETFs charge a fee for their upkeep, and the mutual funds charge a fee on top of that – so not only do they promote their ETF – they also charge a fee while doing that – thank you very much.

At this point, any fund house that has a gold ETF and is NOT launching a gold mutual fund is too far behind the curve in my opinion.

For whatever reasons, people are interested in owning a gold ETF indirectly through a gold mutual fund, and there is absolutely no reason for a fund house to not give people this option.

As far as investors are concerned in my mind the only reasons to invest in a gold fund of fund is when you are buying in small quantities and the commission and demat charges make it expensive for you to buy the gold ETF directly.

Otherwise I think it makes more sense to buy the gold ETF directly, and avoid paying the extra fee for the fund of fund.

The HDFC gold ETF itself is a relative newcomer in the ETF space and is not as liquid as some of the other ETFs so that’s definitely a thing to consider while evaluating this fund of fund, and at present I can’t think of a reason that will make me favor HDFC instead of the other funds.

The NFO started at the 7th October and will end on the 21st October 2011, but doesn’t make any difference and you are better off buying a fund after the NFO period than in it.

That’s it for this review, and if you are interested in gold fund of funds then you should definitely read the other posts I referenced earlier.

Perfios Contest Winners

Thanks to everyone who participated in the Perfios free give away, and especially to those of you who patiently interacted with me to get your names added to the list when it wasn’t there and helped me build the final list.

I’m grateful to Perfios for graciously sponsoring this give away, and following up with me for over two months to get the whole thing going.

I used this Random Number Generator from Random.Org to generate five numbers, and the winners are the people who correspond to the five numbers in the list.

73 – Muppaneni Rajesh

45 – Anurag Sharma

60 – Jignesh Modi

7 – Ani Patharathil

6 – Sivakumar

I will send the winners individual emails, and connect them with the Perfios team so that they can take it forward from there.

Once again, thank you to all of you for entering the contest.

Eurozone Countries and their Per Capita GDP

There are 27 countries in the European Union and out of those only 17 countries use the Euro. All these countries have to approve the new Euro bailout fund, and Slovakia which was the last country to ratify the measure rejected it today. They are going to vote on it again this week, and are expected to approve it with some changes.

Sometime last week I had Tweeted out how strange it was that countries that are poorer than Greece will pass a bailout that will help a richer country, and I casually started looking at the various countries that use the Euro and their per capita GDP. There’s quite a big range there with Luxembourg which is the richest country having a per capita GDP of $108,952 (highest in the world) and Estonia with a per capita GDP of only $ 14,405.

Chartsbin allows you to see this data on a nice interactive Europe map, and here is how that visualization looks like.

via chartsbin.com

Looking at this map brings several things to mind – the first of which being – where the heck is Malta?

I took a really long time to locate Malta, and that’s a tiny dot in the Mediterranean just south of Italy, you will have to hover your cursor a few times there before identifying it if you don’t already know where to look for it.

Switzerland makes a nice little colorless space surrounded by France, Germany and Italy, and its only a couple of months ago that I learned that Switzerland is not part of the European Union at all. You keep hearing about Swiss Francs so you think that they aren’t part of the Eurozone, but they aren’t part of EU either.

CNN ran a map of the debt level of several European countries some time ago, and that also showed quite a range, and a lot of countries with debt level of over 60%.

Here is the data used to create this chart in a tabular form.

Country	Per Capita GDP
Luxembourg	108952
Netherlands	46986
Ireland	46298
Austria	44988
Finland	44496
Belgium	42845
France	40704
Germany	40274
Italy	34059
Spain	30639
Cyprus	28854
Greece	27311
Slovenia	23648
Portugal	21542
Malta	19707
Slovakia	16104
Estonia	14405

Comprehensive List of Nifty Index Funds and ETFs

After writing about the IIFL Nifty ETF last week – I realized that the Nifty index fund list needs to be updated as there are a few more index funds based on the Nifty that have been launched since then.

I started researching Nifty ETFs and mutual funds in India, and found that there were indeed quite a few. Goldman Sachs Nifty ETF is by far the biggest one in them at assets under management of about Rs. 650 crores or Rs. 6.5 billion, and that also shows that Index funds or Index ETFs have not really caught on in India.

In fact some Nifty index funds are really struggling with the Quantum Index fund and Taurus Index Nifty fund managing funds of just over a crore.

The competition in this space is quite intense and that has led to lowering of costs but I still see a lot of index funds charging over a percent and there is really no reason to opt for them at all.

Here is a chart of the assets under management of the various funds.

As you can see Goldman Sachs Nifty Index Fund is ahead by a big margin, but if you look at the returns of these funds then you will see that the returns are not that different because all of them track the same index and are invested similarly.

Here is a chart that shows their returns for the last 3 years.

As you can see Quantum did the best, and Goldman Sachs Nifty BeeS came a close second. When you compare the returns data with the volumes data – GS Nifty BeeS comes out to be a pretty good option in this space.

The only other thing of interest in these index funds and ETFs are the expense ratio, and instead of a separate chart – I will include it here in this table that has all of the above data as well.

Mutual Fund	3 Year Return	AUM (In Rs. Crores)	Expense Ratio
Franklin India Index Fund – NSE Nifty Plan – Growth	14.69	134.71	1%
UTI Nifty Index Fund – Growth	14.33	186.9	1.50%
Tata Index Fund – NIFTY – Option A	14.12	8.98	1.50%
HDFC Index Fund – Nifty Plan	13.55	68.8	1.00%
Nifty Benchmark Exchange Traded Scheme – Nifty BeES	15.39	652.21	0.50%
LIC Index Fund – Nifty Plan	13.15	30.85	1.16%
IDBI Nifty Index Fund – Growth	–	134.93	1.50%
Taurus Nifty Index Fund – Growth	–	1.32	1.50%
Reliance Index Fund – Nifty Plan – Growth	–	62.45	0.40%
ICICI Prudential Index Fund	–	90.36	1.50%
Quantum Index	15.4	1.53	0.50%
Canara Robeco Index	14.86	4.47	1%
Principal Index	14.15	15.76	1%
Birla Sunlife Index	–	7.08
IDFC Index Fund	–	10.92	0.25
Kotak NiftyÂ	–	106.91	0.5
ING Nifty Plus Fund – Growth	–	–	–
Magnum Index	–	–	–

All the data has been sourced from Value Research, and I will continue to update this list from time to time. If you know of any fund that is missing here then please let me know and I will update that information as well.