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What are Alternative Investment Funds

30/8/2017

Executive Summary: Alternative Investment Funds also known as AIFs are investment funds where investors' money is pooled in and invested in different avenues. Investments by savvy investors in AIFs are increasing in India. Investors find them attractive as the permissible investment amount is large, returns prospects are higher and they help in building a well-diversified portfolio.

An Alternative Investment Fund refers to any investment fund where funds are pooled in from different investors. The investors can be Indians, NRIs or foreigners. Savvy investors might find this as an attractive form of investment compared to the traditional investment avenues like Mutual funds and stocks as there is potential for higher yields and bigger investment corpus.
It can be a private equity, venture capital fund, hedge funds, debt fund.infrastructure fund, company or a Limited Liability Partnership (LLP).
There are three types of AIFs -
1) Category I - AIFs investing in ventures involved in social and economic growth at the initial stages. They get some incentives and concessions from government and regulatory bodies. They can be infrastructure funds or social venture funds.
2) Category II – Funds that fall neither in Category I nor Category III are Category II funds. These funds invest in ventures to provide for operations. They can be Private Equity funds or Debt funds. They do not get any special incentives or concessions from SEBI or the government.
3) Category III – These funds can be open ended funds or hedge funds that use different kinds of instruments or trading strategies for investment. They also do not get any special incentives or concessions from SEBI or the government.

Features of AIFs -

AIFs are currently regulated by SEBI (Alternative Investment Funds) Regulations, 2012 also known as AIF Regulations.
Currently the minimum private investment is Rs. 1 crore. If the investor is an employee/director of the AIF or the Manager of the AIF, then minimum investment required is Rs. 25,00,000.
A fund can have a maximum of thousand investors.
The total investment should be at least Rs. 20 crore.
Category I and III are closed ended funds and Category II funds can be closed ended or open ended.
The minimum tenure of an AIF fund should be three years.
As an investor, income earned from investments in AIFs is chargeable to income-tax in the hands of the unit-holder based on the income-tax slab they fall under.

As per SEBI data, more than Rs. 33,000 crore has been raised by AIFs since August 2012.
Here is a list of registered Alternative Investment Funds in India - http://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognisedFpi=yes&intmId=16
A savvy investor with enough funds and following the modern portfolio theory that the investments should be diversified across markets and instruments to mitigate risks and maximise returns can consider investing in a suitable fund.

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What not to expect from Mutual Fund?

29/8/2017

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Ayush Bhargava

EXECUTIVE SUMMARY: Mutual fund investment is getting popular day by day due to its transparency & other features. Safety of Capital, Guaranteed Returns and features like Diversification, beating inflation are some of the points with which investors are keeping high expectation. This article explains why it is wrong to invest just on the basis of false expectation.

Most of us when start investing expect many things from our investment product. Will it be safe? How much return will it generate? Etc. There are few products like Bank Deposits / Post office Deposits which are transparent and are much safer than other products. However, products like Mutual funds and Insurance are not transparent enough. Many times investors are sold these with the high expectation which of course is risky. Nowadays mutual funds are getting very popular among the new investors and it has become one of the most prioritised vehicles of investments in the investors’ portfolio. We all know the concept of mutual funds and why have it become famous as well. It is because of its advantages of diversification, beating inflation, high returns in long term etc.

These are some of the points related to mutual funds with which the investors should not keep high expectations:

Guaranteed returns: During this bull phase, markets have this uncanny habit of lifting up the expectations of investors. It is a common sense here. If it’s a bull market, the investors are definitely on the thus profitable side of investments, let alone those who did not expect the vice-versa. This over confidence of investors in the markets sometimes leads to huge losses as they start expecting an unrealistic rate of return. For example, an investor may expect 15 per cent return this year, but he got a return of 20 per cent, 25 per cent the next year 2 years. Now if this investor expects to earn similar rates of return every year then he is doing a big mistake and will definitely be shocked to see the rate of returns dropping down to 30 per cent the following year if the market falls. This is the main problem of investors. After receiving continuous positive results the concept of rational thinking just gets vanished and one starts expecting unrealistic returns. Leave alone the bull markets, when it’s the bear market and the fund doesn’t perform well, then investors start thinking negatively and they forget the fact that it has given positive returns before. The rational decision making doesn’t come into existence and they now have negative expectations. One’s goal from investment should be getting realistic returns (linked to financial goals) and if the results are beyond one’s expectations then well and good for them.

Safety of capital invested: It’s the hard earned money that one is investing in mutual funds. What is the capital guarantee here? One should remember; these are mutual funds. Due to fluctuating market returns and certain changes, sometimes the capital is also in negative but that doesn’t mean that the money invested is lost forever over here. In the long term, the money invested is definitely going to be earned back. A fund may require that the investor remains invested for a set number of years to help them fulfil their expected rate of returns and hand them over their principal amount as well. In this kind of scenario equity oriented funds have a high risk of capital exposure than the debt oriented ones. The debt oriented funds gives lower returns than the equity but the capital amount invested is at a safer level.

Diversification: Diversification is the key to successful investment in mutual funds but sometimes there is over diversification; which means that investing in those funds that are highly related. This sometimes reduces the benefits of diversification and funds get exposed to a higher level of risk.

Beats Inflation: The mutual fund is the instrument in which people invest money to beat inflation. When it comes to the matter of inflation mutual funds are prioritized among the other investment options like Fixed Deposits, Gold, Savings Accounts, etc. However, investors get disappointed when in the short run they expect debt category of this instrument to beat inflation and end up getting lower returns. Equity investments are the ones that beat inflation in the long run. Sometimes, even equity mutual funds fail to beat inflation in long run. So, one should understand that it totally depends upon fund performance which helps it in beating inflation.

These are some of the major points considered by investors while investing their money into mutual funds. Although, these are the not the main feature of this product but investing blindly on the basis of these few points can also be harmful.

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UTI MF Schemes for the Elderly

24/8/2017

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Executive Summary: UTI MF has launched variations to two MF schemes – MIS Advantage Plan and Wealth Builder Fund to offer financial assistance to the elderly. One can invest in these schemes and set up a regular transfer of amount to one's parents' accounts. This is one way of providing financial security to retired senior citizens.

The number of senior citizens in India is more than 100 million.
The number of senior citizens in India is expected to be more than 300 million by 2050
As of 2015, the average Life expectancy in India is 68.3 years.

Many of them do not have a regular income. Some of them are forced to work for a living even if they are unable to. It is important to give the elderly a life of financial security and dignity.
UTI has launched a new facility called UTI Family under some of its schemes to provide a regular income source for parents.
The schemes for which UTI Family is launched are -
MIS Advantage Plan - A debt-oriented scheme where up to 75 per cent of funds are invested in debt and the balance in equities.
Wealth Builder Fund - Primarily an equity fund.
In both schemes, children of senior citizens can make investments on their behalf. The parents will receive the periodic payouts.
Let us look at the key features-

Investment Amount	Minimum amount- Rs.1000 and 12 instalments.
Eligibility	Investors - All Indian citizens and NRIs subject to RBI requirements. Beneficiaries - mother or father of the first unit holder of the fund. KYC compliance is required.
Withdrawal Amount	Minimum of Rs. 10000
Taxation	The amount transferred to parents will be treated as gift and hence exempted from income tax.

These schemes are a good idea to offer financial security and dignity to old people. If the schemes objectives meet your financial objectives and the performance of the fund is good, you can look at investing in these funds.

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I Lost My Job. What Can I Do Now?

16/8/2017

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Executive Summary: There have been many layoffs in the IT sector and in startups. If one has lost a job, it is important to be calm and collected during this time and take a few steps to ensure that one does not derail the future. These steps include reviewing budget, updating skills and profile and building and reconnecting with a professional network.

Since the beginning of this year, many people have been given the pink slip aka they have lost their jobs especially in the IT sector and startup industry. The companies give various reasons such as Brexit, change in H1 B visa regulations, underperformance and cost control. Other reasons like automation of tasks such as manual testing, customer service and the rise of machine learning and robots on the work floor have also led to job cuts. Companies like TechMahindra, Cognizant, and Snapdeal have been handing over pink slips to employees.

Losing your job can be devastating. It hurts one's self-confidence and finances. What can you do when you lose your job -
1) Get your emotions in order – Take stock of your feelings. They can range from anger, despair, panic and sadness. It is okay to get upset about it but keep a check that you do not become negative and defeatist in your attitude. You have to think of it as a challenge and of ways and means to overcome your challenge.
On the other hand, you can speak to career counsellors who can guide you emotionally as well as in practical matters.
2) Manage your finances – Your financial status can go haywire when you lose your main source of income. Some immediate steps to be taken -

Review your loans, credit card payments. Pay off credit card dues. Check if the next 2-3 instalments of your home loan etc. can be repaid with existing money. If you think you will default on your payments, talk to the lender bank about your current situation. You might enter into an agreement of paying only interest etc. If you are paying rent, talk to your landlord about your situation so that eviction due to non-payment does not become an issue.
Check your emergency fund corpus. It will come handy in this situation.
Manage expenses prudently. Do not spend money on unnecessary things and comfort items. Do not use your credit card for purchases. Use cash. It will keep a check on your expenses.
Do not cancel health and life insurance policy covers thinking you will save the premium money. Insurance will protect against emergencies like sickness or death.

When one door closes, another opens. We just need to see which one opened.

3) Update your profile and apply – Draft a professional profile as per latest trends. Circulate it and let people in your professional network know that you are looking for a job. You can check out freelancing sites such as Upwork and Toptal for freelance assignments. You will earn money, stay in touch with your skills and also be able to increase the reach of your professional network.
4) Increase your network – You have time on your hands. You can get in touch with former colleagues, ex-bosses and friends in the similar field. You can build your relationships. This can create opportunities for new jobs.
5) Update your skill levels – You always wanted to learn that new software tool or acquire a professional certification but never did due to work pressure! Here is the perfect time. Go ahead and acquire certifications to improve your job prospects. You can learn new skills that are in demand. You can upgrade your skills too.
6) Treat it as a sabbatical – Sometimes it is not so bad to lose your job. You finally have time to ponder over your next steps and your future. Are you doing what you really want to do? Is there some other career that will interest you? You can decide on your future course of action. You always wanted to go to the mall beating the weekend rush or go to a coffee shop and catch up on the books that you always wanted to read. You can do it now! Go for the trek that you wanted to go for or spend time with your children. It will recharge your batteries and give you a fresh perspective on many things.

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I Want to Know More About Delisting of Shares

10/8/2017

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Executive Summary: Removal of securities for trading from the stock exchange is called delisting of shares. It can be voluntary wherein shareholders get their value back or compulsory where shareholders might not get back the full value. The names of delisted companies are available on the NSE and BSE websites. Transactions on to-be delisted or delisted shares do occur. But as a retail investor who might not know everything about the true state of affairs in the company, it is better to stay away from such transactions.

What is delisting of shares?
Delisting of securities means removal of securities of a listed company from a stock exchange. When a company is delisted from a stock exchange, there will be no trading of its securities in that exchange. Delisting can be
Voluntary – The company pays investors and removes its securities from the exchange. This happens when the company wants to restructure or is acquired by another company.
Forced – The company is removed from the stock exchange due to reasons of non-compliance.
Usually shareholders are notified in advance about the delisting so that they can decide on their next steps.

Why do companies get delisted?
Companies get delisted from a stock exchange for many reasons -

Non-compliance with listing requirements of the exchange.
Violation of regulations
Switching of exchange.
Company becomes a private limited company
Liquidation or Bankruptcy
Mergers, amalgamations, takeovers.

What happens to my shares of the company that is delisted?
In case of a voluntary delisting, the company offers shareholders a price that is more than the current market value for the shares. This happens off the exchange and is a transaction between the promoter and the shareholder.
In case of forced delisting, the shareholder has to sell at the price decided. This can be more or less than the actual value of the stock. In some cases, the shareholder is unable to sell the stock. The entire investment has to be written off as a loss. You might make losses here, but it is better to release blocked funds in bad investments and deploy them in more profitable and safe investment options.
There are some brokers who trade in stocks of delisted companies. They might buy the shares of the delisted company from you if they see value or think there is a demand from other investors. In some cases, people buy stocks that are going to be delisted. There is demand for shares that are going to be delisted because valuation may increase when the shares are delisted. There could be a re-listing some time in the future at a much higher value than the current price.
Market operators and people in the know of the situation in the company may buy delisted shares. f you are a retail investor, you may want to stay away from buying delisted shares. It is a risky proposition and you could end up losing your money. Moreover there are not many regulations governing such transactions and therefore you may not have much of a legal backing if something goes wrong.

What are the tax implications of selling delisted or to be delisted shares for the retail investor?
Profits made on selling shares (whether listed, delisted or to be delisted) are considered as capital gains. If delisting takes place after one year of the investor buys the security, there are no capital gains tax as it is considered as long-term gains. If delisting happens within a year of the purchase, the gains will be taxed as per the tax slab that the buyer falls under.

What else should I know about delisting?

Companies cannot voluntarily delist their shares unless they have been listed in a recognised stock exchange for at least three years.
Promoters and whole-time directors of companies that have been forcibly delisted are not allowed to become directors of any listed company till a fair exit option is provided to the public shareholders.

Which are some of the companies that have been recently delisted from BSE and/or NSE?
You can check here for companies that have been delisted from BSE.
The companies delisted from NSE can be downloaded from the website of NSE.

Recently, SEBI has named 331 companies and asked the BSE and NSE to initiate action against them as they are suspected to be shell entities and not real companies. Regular trading for these companies is not allowed for this month.
It is important to do a thorough research and analysis of the stock before buying it. Sometimes even that may backfire. In such cases, it is best to move on learning from the mistake rather than moping about the loss.

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Book Review -Make Your Kid a Money Genius -Beth Kobliner

7/8/2017

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Executive Summary: The book 'Make Your Kid a Money Genius' written by Beth Kobliner is a nice insight into how to teach your children about financial concepts, sensible financial management and good money habits. It is applicable to parents of kids right from 3 years old to 23 years old.

It is important to educate your children about financial discipline even if you are not the best at managing finances. Just like you teach them or make sure they learn life skills elsewhere, you have to teach them money management skills. Parents must try to instil good financial habits in kids from when they are young.
Beth Kobliner's book 'Make Your Kid a Genius (even if you are not) is a guide to parents on how to teach children to manage money smartly. The book is for parents of children with ages ranging from 3 -23 years. It is an easy read. It stays away from complicated jargon and the tone is conversational.
The book is divided into 6 age groups – Preschool, Elementary, School, Middle School, High School, College and Young Adults so that parents can pick up sections as per their kids' age and get the money conversation going.

Some aspects of the book which makes it an essential read for parents -

She first outlines 14 rules to follow when you talk to your children about money. These include having age appropriate conversations. You can give examples of people who have gone through financial crises. For example, you can say how a certain person had to cancel their vacation to Disneyland as their credit card debt became too high without really naming them. You should be honest about your money status with them. It is necessary to have regular conversations about money so that they understand concepts. They learn a lot from your behaviour. So set a good example and make good money decisions. If you talk a lot about working hard to earn and saving but are going to spend money on lottery tickets, they will probably do something similar.
There are some things that you do not talk about with your children like your exact salary or how much you spend on a gift or what you pay the tutor.
She talks about how to encourage saving and working hard. She asks the parents to tell the kids to save up from their allowances to buy their next cool gift. It is important for them to be part of the family in fun time as well as chores time. It is not necessary for parents to give allowances for chores as doing chores is part of being in the family.
She says it is important to teach them to live a debt free life. The books has tips on how to help them spend better and smarter. For example, when you are taking your pre-school kids to the market, you can tell them that you are going there only to buy Item A, Item B and Item C. No other item would be purchased. In this manner, they are prepared that they may not get what they ask for in the shop. They will learn how not to spend on an impulse or delayed gratification. Slightly older kids can be asked to make decisions. In one example, a dad decided to give his son a gift card to a sporting goods store. The card allowed him to decide whether to spend the entire amount on the pair of sneakers he wanted or get a less expensive pair so that he could also buy a basketball,The son ultimately opted for the less expensive shoes.
She gives practical recommendations charity, taking loans, moving home and college education. The examples are based on life in United States but most of them can be adapted in other countries.
There are numerous lists of rules and tips, explanations of complex issues, and illustrations of financial documents. We can apply them in daily life.
Moreover the book can be used for reference. It is not necessary to read the book from start to end in one go.It can be used at different times. When you are explaining to your children about interest or investments, you can pick up the relevant section and talk about it.
The last section gives some financial advice to the parent so that the financial situation of the family is in control. The advice includes getting insurance, estate, investing in the right manner and practicing what one is preaching to their kids.

The book gives good lessons on budgeting and money management. It also talks about values such as working hard, living within your means, getting a good education, being generous, delaying gratification etc. which are not just useful for managing money but lay the foundation for being successful. It is a good book that can be used for helping your kids be wise about financial concepts and choices.

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Yours truly

What are Alternative Investment Funds

What not to expect from Mutual Fund?

UTI MF Schemes for the Elderly

I Lost My Job. What Can I Do Now?

I Want to Know More About Delisting of Shares

Book Review -Make Your Kid a Money Genius -Beth Kobliner

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Yours truly

What are Alternative Investment Funds

What not to expect from Mutual Fund?

UTI MF Schemes for the Elderly

I Lost My Job. What Can I Do Now?

I Want to Know More About Delisting of Shares

Book Review -Make Your Kid a Money Genius -Beth Kobliner

Archives

​Categories

External Sites

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