A credit card is a form of borrowing and allows you to borrow up to the credit limit set for your card. The outstanding balance on your credit card (usually amounts you have charged to your credit card) represents what you owe. You can pay the bill in full, make a partial payment or pay the minimum sum.

Interest will be charged on the outstanding balance if you choose to pay only the minimum sum or part of the amount due stated in your monthly statement. Interest will also be payable on any new item charged to the card from the moment you make a purchase.

Usually, there is a grace period of between 20-25 days for you to pay the outstanding balance on your credit card in full, without incurring interest

If you cannot pay the bill in full, you should at least pay the minimum sum by the payment due date and roll over the balance. The minimum amount is usually 3 - 5% of the outstanding balance or a specified amount, for example, Rs.1500, whichever is higher.

You will not incur a late payment fee if you pay the minimum amount. But if you pay the minimum sum and roll over the balance, you will be charged interest on your current purchases as well as on all subsequent purchases. Interest will be calculated on the outstanding balance from either the date each transaction took place, or the statement date. This depends on the card issuer.

1. Balance transfer facility

This enables you to transfer your outstanding balances with other card issuers to your credit card at a lower interest rate for a limited time period. The periods usually range from 6-12 months. After this, the interest rate will revert to the prevailing interest rate (usually 24% per annum).

Other terms and conditions may apply. For example, the lower interest rate may only apply to the transferred balances and not to amounts charged to your card, which could be charged at a higher interest rate. Depending on the card issuer, new amounts charged to the cards may not enjoy the grace period or free credit period once the balance transfer facility on cards is used. It is important to pay off outstanding debts before adding on new debt at higher interest rates.

2. Cash advance facility :

It allows you to get extra cash drawing down from the credit limit available on your credit card.

• AA fee of 3-6% of the cash advance (subject to a minimum amount) may be imposed.
• BInterest is usually charged daily at 2% per month or 24% per annum from the date of the cash advance until full repayment is made. If full repayment is made after the billing statement date, interest is charged between the billing statement date and repayment date.

3. Zero % interest instalment plan (IPP) :

Credit card issuers often tie up with different merchants to offer interest-free instalment plans. Such schemes may allow you to pay the same price as someone who pays the whole sum upfront in cash.

Things to be aware of:

• AYou have to pay the monthly instalments on time or the standard interest charge (usually 24% per annum) will apply.
• BYou may not be able to cancel the card until full repayment is made on your instalment plan.
• CIf you opt to pay the minimum sum (assuming that it is less than the monthly instalment amount), you will have to pay the usual interest rate on the outstanding balance, in addition to any applicable late payment charges
• DRefund or exchange of products and services may not be allowed once the instalment plan is approved by the bank.
• EYou may have to pay a penalty fee should you later choose to opt out of the monthly instalment plan and make full repayment.
• FYou may have to continue paying the monthly instalments even if the merchant ceases business operations and is unable to continue providing the goods or services you purchased.

4. Free gifts and reward schemes

Credit card issuers may offer free gifts and bonus points when you chalk up spending on your credit card. Certain terms and conditions may apply. For example, you may not be able to cancel your card within the first year after claiming a free gift.

Compare how the bonus points are calculated as different card issuers have different reward schemes.

5. Your monthly statement

The card issuer will send you a monthly statement detailing all the purchases you have made with the card during the month. All transactions recorded between the statement date and the last statement date will appear on this statement.

Check your statement carefully to help you keep track of how much you owe. Inform the card issuer promptly if there are transactions listed which you do not recognise, or if anything is unclear.

The payment due date is the date by which you should pay your credit card bill so that you do not incur late payment charges. You can pay the bill in full, make a partial payment or pay the minimum sum. Read here for a general illustration of the statement.

6. Mode of payment for credit card bills

You can pay by cheque, ATM, Phone Banking, cash via bank branches or online.

If you only pay the minimum sum (usually 3 - 5% of the outstanding balance or a specified amount, for example, Rs.1500, whichever is higher) stated in your monthly statement, you will be charged interest daily, amounting to around 2% per month or 24% per annum of the outstanding balance. Interest will usually be charged on the outstanding balance from the statement date and on any new amounts charged to your credit card.

Assuming,
Outstanding balance of Rs.10,000 in your credit card statement Minimum payment made = 5% X Rs. 10,000 = Rs.500(pay the minimum sum of 5%)

If you do not charge anything new on your credit card during the month,
The estimated interest charges = 2% X 10,000 = Rs.200

The minimum payment will be used to pay the interest charge first before reducing the outstanding balance. So, out of the minimum sum of Rs.500, after deducting Rs. 200 to pay interest, there is Rs.300 left to pay down the outstanding balance.

The outstanding balance is now = Rs.10,000 - Rs.300 = Rs.9700 (this excludes any late payment charge that could be imposed)

If you do not charge any more spending on your credit card and if you only service the minimum sum every month, it would take more than 2 years to pay off your credit card debt of Rs.10,000. This will cost you about Rs.3750 worth of interest charges in the process.,

Interest charges actually take up a big proportion of your repayments. These hefty charges can be avoided if you pay the full amount on your credit card statement every month.

In addition, if you fail to make the minimum payment on time, your credit repayment record will be adversely affected. Your credit repayment record forms part of your credit report which is used by lenders to decide whether to lend you money. A report that shows late payments might lower your chances of getting a loan in the future or require you to pay a higher interest rate for a loan. Do protect your credit record and avoid incurring credit card debts where you can, especially if it is for items you do not need.

Take the following steps to prevent someone else from using your credit card or your card information:

A number of credit card security measures are adopted by banks to provide cardholders security and protection against card fraud. Examples of card fraud include counterfeit fraud, card-not-present fraud, and fraud committed with stolen cards.

EMV, which stands for Europay, MasterCard, and Visa, is a global standard for inter-operation of integrated circuit cards (IC cards or "chip cards") and IC card capable point of sale (POS) terminals and automated teller machines (ATMs), for authenticating credit and debit card transactions.

EMV is a global security standard for chip card technology. With the EMV chip, you are better protected against fraudulent activities. Chip cards are safer than magnetic stripe cards as the chip prevents its contents from being copied and cloned.

To prevent the unauthorised use of your new card in the event, the card is intercepted or stolen in the mail, credit cards will be issued and mailed to the customer in an unactivated state. Customers will have to activate the card before it can be used. The bank will inform you how your card can be activated.

3D Secure is an added layer of security for online payment card transactions. When a cardholder makes a purchase at a merchant website that uses 3D Secure, the cardholder will be asked to enter a One-Time Password (OTP) before the transaction can be completed. Do not perform online transactions using shared devices such as computers in cyber cafes.

If you are unable to pay your credit card bill, or your payment is overdue, do not panic. Take the following steps:

If you lose your credit card, inform the card issuer immediately. If your card is stolen, make a police report and inform the card issuer immediately.

A life insurance policy pays out an agreed amount known as the sum assured under certain circumstances. This will be paid to you if you are permanently disabled or critically ill, if your policy provides for this, or paid to your estate if you are no longer around. This money is intended to help you meet your financial needs and / or those of your dependants if these events happen. Life insurance provides financial protection or coverage against these risks.

The life insurance policy contract is between you and a life insurance company. In return for this protection or coverage, you pay a premium for an agreed period of time, depending on the type of policy you purchase.

Life insurance policies are often marketed to meet retirement planning, savings and investment purposes too. For example, an annuity can provide an income during your retirement years.

Life insurance products like whole life and endowment participating policies or investment linked plans (ILPs) bundle together a savings and investment element with insurance protection. Hence, for the same level of insurance cover, the premiums will cost more than for a pure insurance product like term insurance.

Bundled products tend to build up cash values over time. These are paid out when the policy matures or is surrendered. Death benefits that include cash values are paid out upon the death of the insured. Term insurance does not build up cash values.

Bundled products are often marketed as savings products because a part of your premiums is invested to build up cash values. But unlike savings deposits where you generally expect to get back the amount you saved, the guaranteed cash values of an insurance product may be less than the total premiums paid. While part of your premiums will pay for insurance protection while the rest is invested and subject to investment risk.

If your aim is to protect your family's well-being, make sure the product you buy meets your protection needs first. You should consider term insurance if all you want is life insurance coverage.

Buying a life insurance policy is a long term commitment. Take some time to assess what you need and what you can afford. Shop around and compare the different products available before picking the policy you find most suitable.

1. Risk you are insuring against - The risk could be death, a critical illness, or total and permanent disability.

2. The amount to provide for yourself and / or dependants to cope with financial loss depends on factors such as:

3. Your affordability - Premium depends on the preferred insurance coverage.

In addition to risk you are insuring against and your affordability, the following apply for both insurance coverage and investment objectives

1. Your financial goals
They could be specific like paying for your children's education or saving for your retirement. These goals have specific time frames or investment horizon(s). It can be general to meet up any of your future requirements.

2. Work out how much you need for your goals and when you need the money. Based on what you have today, you may need Rs.5,00,000 more in 5 years' time for your daughter's education or an additional Rs.20,00,000 in 15 years for your retirement. Knowing how much you need and how much capital you have to start with will help you determine the sort of returns you want, subject to the risk you can afford to take and how well you understand the product to be suitable for you.

3. Do compare the investment features and risks of the insurance product with other types of financial products (e.g. shares, bonds, deposits, unit trusts, or exchange traded funds).

Make sure you understand the factors that affect the product's returns. Choose a product that fits your risk profile, i.e. how much loss you are willing to and able to bear in exchange for the potential returns of the investment. Do not over-state your ability to take risk in the hope of a higher expected return.

5. Type of Investor
Even if you are a passive investor and take a long-term buy and hold approach, you should still monitor your insurance products regularly. You may need to take action if investments appear unlikely to achieve the amounts you need for your financial goals.

Life insurance products like whole life and endowment participating policies and ULIPS provide both protection coverage and investment benefits and build up cash values. Insurance-only products such as term insurance do not build up cash values. For the same level of insurance cover, the premium for a term insurance product will be lower than the premium for a bundled product.

If you are considering a bundled product, do compare its projected returns and risks with other investment products. Ask your financial adviser representative to help you make this comparison.

Whole life insurance provides life-long protection for your dependants. It pays out the death benefit upon the death of the insured. Before you buy a whole life policy, ask yourself if you need to provide for your dependants for the rest of your life or just until they are financially self-reliant.

Whole life insurance policies cost more because in addition to paying for insurance coverage, some of the premiums are invested to build up cash value.

The amount of premium paid throughout the policy may be constant or subject to change depending on the policy you have.

There are few other benefits that one can get from insurance company - few are priced in the premium & for others you need to pay additional premiums. These can be like

Endowment policies are often marketed to help you meet a financial goal like paying for your children's education, or to build up savings over a fixed policy term. But unlike savings deposits, the guaranteed cash values you get back may be less than the sum of the premiums paid. This is because part of the premiums will pay for insurance protection while the rest is invested and subject to investment risk.

Endowment policies usually mature after a fixed period of time, e.g. 10, 15 or 20 years.

The insurance protection provided by endowment policies is usually small so make sure your insurance protection needs are sufficiently covered by the policy if this is important to you. You could also consider another insurance product.

On the other hand, if you are buying an endowment policy to help you save or invest but already have sufficient insurance coverage from other insurance products, do consider carefully whether to proceed, as you could be paying for something that you don't really need. Remember to compare the product's features, returns and risks with other investment products.

Monitor your endowment policy on a regular basis, especially when you are nearer the time you need the money e.g. to pay for your children's education.. If needed, you may have to save more or consider other investments or take steps to preserve what you have accumulated.

ULIPs do not have guaranteed cash values. The value of the ULIP depends on the price of units in the fund which in turn depends on fund's performance. While the premiums remain constant throughout the life of policy, the cost of insurance coverage increases every year as you get older. This means more units may be sold to pay for insurance charges, leaving fewer units invested to accumulate cash values.

1More exposure to investments than other life insurance products

2There is a range of funds to choose from

3lexibility to vary the insurance coverage and investment mix according to your changing financial needs.

ULIPs offer a range of funds that you can choose from. It is important to understand the fund's investment strategy and approach, as well as the potential risks.

1Choose a fund(s) that suits your investment objectives, risk profile and time horizon.

2Do not assess the fund's return only.

3Make sure you are comfortable with the fund's risks and that these are consistent with your risk profile.

Some investments offer greater potential for higher returns but come with an increased risk. On the other hand, cash funds may be expected to yield more modest returns in exchange for relative safety. Do not be tempted to take on more risk in exchange for potentially higher returns. Do compare the suitability of the ULIP with other investment products.

ULIPs allow you to move your money from one fund to another. This is known as fund switching and may be helpful if there is a change in financial circumstances and risk appetite has changed and you no longer find your current fund suitable.

When switching fund(s), do take into consideration your ability and willingness to take risk, investment objectives, time horizon and other personal circumstances. Most insurers offer a limited number of free switches and charge a nominal fee per switch thereafter.

Most regular premium ULIPs give you the flexibility to vary the insurance coverage and investment mix if your financial needs change. You may top up your investments, make withdrawals and switch funds. But any increase in coverage will be subject to underwriting.

ULIPs carry investment risks. The value of an ULIP varies, depending on how the fund you have chosen performs. The returns are not guaranteed. Do note that the past returns of a fund are not necessarily indicative of the future performance of the fund.

Note that fees and charges may not be guaranteed and are subject to change. These are typically deducted from the (monthly) sale of units.

You may not need life insurance if you do not have any dependants. If you are considering an ULIP, do think about whether you can keep up with the premiums if you no longer earn an income. Also, it is suited for investors with a longer investment horizon. There may be other investment options that could better suit your needs.

Similarly, if insurance protection is a significant objective, but coverage is required only for a limited period, there could be other insurance options you should consider.

An annuity is a type of insurance policy which guarantees fixed payments at regular intervals (usually monthly), for as long as the policyholder lives or for a fixed period of time. It is usually purchased to provide income during retirement. The premium is usually payable as a lump sum but there can also be regular premium payments for an agreed time period.

To consider before buying an insurance

You must truthfully disclose all the information asked for in the proposal form (application form). If you are not sure about including some particular information, it is recommended that you disclose it anyway. This includes any information you may have given to your financial adviser representative but was not included in the proposal form.

Make sure that the form is properly completed. If you spot any inaccuracies or missing information, ask for the document to be amended immediately. Do not sign the application form if there is inaccurate or missing information as the policy could be voided by the insurance company and you or your dependants could end up without protection when it's most needed.

1Make sure that the recommended policy suits your needs.

2Do take time to read the documentation carefully.

3Ask your financial adviser representative to explain all calculations in writing and for all verbal explanations and promises about returns and benefits to be confirmed in writing

4If you realize that the policy is not what you wanted or not what was promised or if some of your personal details are inaccurate, you must contact your insurance company within 14 days (from the date of receiving the contract) to clarify or cancel your policy.

5Do find out if the policy has any exclusions on coverage. In addition, find out about the claims process:

6how to make a claim

7how the assessment is made

8how long it will take

1Never sign blank or incomplete forms.

2Do not release your identity card to someone you do not know or without first clarifying why it is needed.

3Be careful of verbal promises and guarantees of high returns and insist on written confirmation before committing to buy a product.

The premium you pay for your insurance policy depends on the insurance coverage and / or the savings or investment benefits you prefer. Take time to think about what you can afford when deciding on the type of insurance policy and the amount of coverage.

Always check the statements and read the letters sent by your insurance company. If you do not understand, ask your financial adviser representative or the insurance company for an explanation.

An accident, illness or disability may leave you with some financial loss. Besides incurring medical and /or hospitalisation costs, you may be unable to work, whether partially or fully, during your recovery.

There are different health insurance policies to help you and your family cope with expenses at these times. Some policies provide cash to help make up for income loss while you are disabled or hospitalised. Other policies help cover the cost of medical treatment or nursing care.

Get health insurance while you are still young and healthy. If you apply for insurance after you have developed some health conditions, the insurer may exclude those conditions from coverage. Most policies also have a last entry age after which you will not be able to apply for coverage.

Your employment benefits may include group health insurance coverage. Find out whether you have such a benefit, and if so, what you are covered for. Group insurance policies may not cover you when you change employer or retire so you should consider having a personal policy as well.

Health Insurance policies insure you against several illnesses and guarantee you stay financially secure should you ever require treatment. They safeguard your peace of mind, eliminate all worries about treatment expenses, and allow you to focus your energy on more important things.

1Comprehensive health insurance coverage

2Hospitalization plan

3Critical illness plans

3Specific conditions coverage

Comprehensive health insurance coverage: These plans provide you complete health coverage through a hospitalization cover while at the same time also creating a health fund to cover any other healthcare expenses

1The policy may not fully pay for actual medical expenses incurred.

2The policy will usually include limits for each illness, disability, by policy year or lifetime.

3Certain conditions and pre-existing conditions may be excluded from cover. Treatment that is not for medical reasons may also be excluded.

4Investigative procedures such as tests / biopsies for diagnosis purposes, for example to detect a specific illness or medical condition may or may not be included.

5Waiting periods may also apply. If so, expenses will not be paid during the waiting period.

With medical expense insurance, the total reimbursement you will get from all your policies is limited to your actual expenses. So buying additional medical expense insurance policies does not necessarily provide extra

Hospitalisation plan: These health insurance plans cover your expenses in case you need to be hospitalised. Within this category, products may have different payout structures and limits for various heads of expenditure. The hospitalisation coverage may be reimbursement based plans or fixed benefit plans. These plans aim to cover the more frequent medical expenses.

1A hospital cash insurance policy may have a waiting period. This means benefits are paid only after you have been hospitalised for more than a set number of days.

2Benefits may also be paid for only a fixed number of days each year or the life of the policy. If it's for a fixed number of days over the life of the policy, the policy will end once the lifetime limit has been reached.

3Waiting periods and benefit limits may vary across policies.

These health insurance plans provide you coverage against critical illness such as heart attack, organ transplant, stroke, and kidney failure among others. These plans aim to cover infrequent and higher ticket size medical expenses.

1The benefits are paid only if the disease or surgery exactly meets the definition stated in the policy. Definitions of diseases covered by a standard critical illness policy are fixed across all insurance companies.

2There is usually a waiting period for certain diseases or types of surgery. If any disease or type of surgery specified by the policy is diagnosed or carried out during the waiting period, no benefits will be paid.

Some critical illness policies pay a smaller amount for earlier stages of cancer, or make several payments upon diagnosis of different insured critical illnesses, subject to the sum insured or policy limits.

Specific Conditions Coverage: These plans are designed specifically to offer health insurance against certain complications due to diabetes or cancer. They may also include features such as disease management programs which are specific to the condition covered.

General insurance gives you some financial coverage against a range of events or loss which could be suffered, for example

1Comprehensive health insurance coverage

2Loss of your belongings

3Damage to car

4Damage to house

If the event happens, your insurance company will pay you an agreed amount, or an amount to cover some or all of the loss.

Impact from accident can be as small as a scratch to as big as death - impact can be temporary or sometime even permanent. Accidental insurance policy covers this risk but first check the definition of accident. Accident or Accidental means a sudden, unforeseen and unexpected event caused by external, violent and visible means which results in physical bodily injury.It excludes suicides, self injury, armed force operations, war etc.

In case of death term plan will help family to cope up with financial hardship but what about an accident where one looses body parts & that impacts his earning abilities. In such situation Accidental Insurance can be very helpful.

1Yearly Contract: Accidental insurance is yearly contract that you can renew every year.

2Maximum Insurance: It depends on your income - some insurance companies give 60-100 times of your monthly income others give 8 to 10 times of your yearly income.

3For Non Earning Members: Few insurance companies provide accidental insurance to dependents but have limitation in sum assured. 25% to 50% of the proposers sum insured with maximum limits in rupee terms.

Comprehensive Accidental Insurance policy provides benefits in 4 cases:

We are likely to save or invest money for some future goal. If you are new to investing, here are some steps to get you started on an investment plan.

i) Setting goals
1Common goals include paying off your student loans, accumulating funds for retirement or children's education.
2Work out how much money you need and when you need it.
3The time available to invest your money till it is needed is known as investment horizon.

ii) Amount affordable to invest
1The money available to invest, after meeting household expenses, insurance premiums and debts, as well as some savings decides the amount you can afford.
2The possibility to cut some expenses to free up more money for saving or investing (one lump sum or fixed amounts in a regular basis) and the risk tolerance can be taken into consideration.
3Do not commit to pay or invest more than you can comfortably afford and always look for a cost-effective alternative.
4Your age also matters as a longer investment period helps to ride out short term fluctuations or losses, and to benefit from compounding.

iii) Know yourself and some suitable investing basics

iv) Consolidate and prioritize your goals
1After examining what you need, when you need, how much you can invest, and the risk you can afford to take, you may need to reprioritize your goals. You might need to settle for a smaller house or smaller car, but it would be unwise not to build up adequate retirement savings and provide for adequate healthcare cover.

v) Steps to achieve your goals
1This could be saving or investing in a diversified portfolio of financial products to achieve your needs. Always keep the steps above in mind when considering your action. Choose investments based on your suitability, personal circumstances, understandability of the product, and your diversified portfolio to reach your investment objectives.
2Do find out whether you can manage risks or limit losses once you are invested. Remember there are products where you can lose all initial investment, more than your initial investment and products whose market values go up and down. Be aware that markets could be at a downturn when youwant to take out your money. It is important to monitor your investments carefully in case you need to liquidate them. 3Do consider rupee cost averaging as a means of accumulating the assets you want.

vi) Monitoring performance, rebalancing and adjusting your investments
1Investing is an on-going responsibility. Even if you choose to be passive (investing in unit trusts or funds that track indices), you should regularly review the performance of investments to see if you are on track to achieving your goals. Do watch factors influencing the performance of your investments and take action if it is underperforming.

i) Savings Bank Account
1The first banking product people use
2Low interest and highly liquid
3Suitable for inculcating the habit of savings among the customers

ii) Recurring Deposit Account
1Some fixed amount is deposited at monthly intervals for a pre-fixed term
2Earns higher interest than Savings Bank Account
3Helps in the saving of a fixed amount every month

iii) Special Term Deposit Schemes
1Tax Saving Scheme available with banks
2Relief under Section 80C of the Income Tax, Act is available
3Term Deposit of 5 years of maturity in a Scheduled Bank is mandatory

The incomes from the investment are exempt from tax and the investments in these schemes are deductible subject to certain limits from the taxable income.

i) National Savings Certificate (NSC)
1Popular Income Tax Savings scheme, available throughout the year
2Interest rate of 8.50 to 8.80%
3Minimum investment is Rs. 100/- and with no upper limit
4Maturity period of 5-10 years
5Transferable and a provision of loan on the basis of this scheme

ii) Public Provident Fund (PPF)
1Interest rate of 8.70% p.a.
2Minimum investment limit is Rs.500/- and maximum is Rs.1,50,000/-
3Maturity period of 15 years
4First loan can be taken in 3rd FY from the date of opening the account, or up to 25% of credit at end of 1st FY. Loan can be returned in max. of 36 installments
5Can withdraw not more than 50% of balance every year from 7th year onwards.

A Bond is a loan given by the buyer to issuer of instrument, in return for interest. Bonds are issued by companies, financial institutions, or Government. The buyer receives interest income from seller and par value of bond is receivable on specified maturity date.

Investors earn returns when they receive coupons and if the price of the bonds gains in value. Investors receive a regular coupon. If you buy a bond at 100% of the face value and hold the bond until maturity, return is equal to the coupon you receive. If you buy at more or less than the face value, your return is based on the coupon you receive plus any capital gain or loss from holding the bond (i.e. difference between price paid and the price sold). Bond’s return is usually called its yield.

Bonds may be attractive for investors who want a source of regular income or to diversify their portfolio of investment assets. A diversified portfolio helps to reduce the risks caused by a concentration in similar assets. By including assets whose values do not always move in the same direction or same degree as other assets in the portfolio, you may give up some gains but also reduce some losses in portfolio. For example, certain market conditions do not support the price of shares, but may be positive for bonds.

Apart from market driven price fluctuations, an issuer’s bond price will suffer if investors doubt the issuer’s creditworthiness (its ability to repay its debt obligations). For instance, if the issuer gets into serious financial difficulties, the likelihood of a default will increase. A missed coupon can also result in a default and may lose all or a substantial amount of the money invested.

The bondholder is a creditor. If the bond issuer becomes insolvent/bankrupt, creditors are generally repaid first, before shareholders. Bonds are regarded as less risky than shares.

Not everyone should invest in bonds. Do not consider this type of investment if you:

1Do not understand or are unclear about factors and scenarios that affect returns
2Do not understand the risks associated with bonds
3Want potentially higher returns but are not prepared for risks
4Cannot build a sufficiently diversified portfolio of assets; Are not prepared to leave your money tied up for long periods of time
5Do not have the time and resources to monitor markets or corporate performance

Tax-Saving Bonds

Tax-Saving Bonds offer tax exemption up to a specified amount of investment, depending on the scheme and Government notification. Examples are:

1NABARD / NHAI /REC Bonds under Section 54EC of the Income Tax Act, 1961

2RBI Tax Relief Bonds

Regular Income Bonds

Regular-Income Bonds provide a stable source of income at regular, pre-determined intervals. Examples are:

1Step-Up Interest Bond

2Retirement Bond

3Encash Bond

4Education Bonds

5Money Multiplier Bonds

6Deep Discount Bonds.

Key Features

1Rated by specialized credit rating agencies like, CRISIL, ICRA, CARE, Fitch etc.

2Suitable for regular income-Interest received semi-annually, quarterly or monthly

3Bonds available in both primary and secondary markets

4Market price depends on yield at maturity, interest rates, and rating of issuer

5One can borrow against bonds by pledging the same with a bank

6Minimum investment ranges from Rs. 5,000 to Rs. 10,000

7Duration usually varies between 5 to 7 years

8Can be held in demat form

Key questions to ask before investing in bonds

Consider investment in bonds in light of your own circumstances. In particular, you should consider whether you:

1Have sufficient knowledge and experience to make a meaningful evaluation of the merits and risks of investing in the bonds

2Understand thoroughly the terms and conditions of the bonds

3Have access to, and knowledge of, appropriate analytical tools to evaluate the investment in bonds and its impact on your overall investment portfolio

4Have sufficient financial resources and liquidity to bear all the risks of bands

5Are able to monitor or evaluate (by yourselves or a financial adviser) changes in economic or other factors that may affect the issuer or the bonds.

A mutual fund pools money from many investors and invests them in stocks, bonds, short-term money-market instruments, other securities / assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each unit represents an investor’s proportionate ownership of the fund’s holdings and the income those holdings generate.

1Professional Management – Money is invested through fund managers
2Diversification – Diversification is an investing strategy, summed up as “Don’t put all your eggs in one basket”. By owning shares in a mutual fund instead of owning individual stocks or bonds, the risk is spread out
3Economy of Scale – Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than individual transactions
4Liquidity – Just like individual shares, mutual fund units are convertible into money by way of sale in the market
5Simplicity – Buying a mutual fund unit is simple. Many banks have sponsored their own line of mutual funds and the minmum investment amount is small

Investors should examine the above features carefully before investing in mutual funds

Each fund has a predetermined investment objective that tailors the fund’s assets, regions of investments and investment strategies. At the fundamental level, there are three varieties of mutual funds:

1Equity funds (stocks)
2Fixed-income funds (bonds)
3Money market funds

All mutual funds are variations of these three asset classes. For example, while equity funds that invest in fast-growing companies are known as growth funds, equity funds that invest only in companies of the same sector or region are known as specialty funds.

Mutual Funds can also be classified as open-ended or closed-end, depending on the maturity date of the fund.

Open-ended Funds

1An open-ended fund does not have a maturity date
2Investors can buy and sell units of an open-ended fund from / to the Asset Management Company (AMC), at the mutual fund offices or their Investor Service Centres (ISCs) or through the stock exchange.
3The prices at which purchase and redemption transactions take place in a mutual fund are based on the net asset value (NAV) of the fund.

Closed-end Funds

1Closed-end funds run for a specific period
2On the specified maturity date, units are redeemed and scheme comes to a close
3The units shall be listed on a stock exchange to provide liquidity
4Investors buy and sell the units among themselves, at a price prevailing in market

Money Market Funds

1Invest in extremely short-term fixed income instruments
2The returns may not be very high, but the principal is safe
3These offer better returns than savings account but lower than fixed deposits without compromising liquidity

Bond / Income Funds

1Purpose is to provide current income on a steady basis
2Invests primarily in government and corporate debts
3While fund holdings may appreciate in value, the primary objective of these funds is to provide a steady cash flow to investors

Balanced Funds

1Objective is to provide a balanced mixture of safety, income and capital appreciation
2Strategy is to invest in a combination of fixed income and equities

Equity Funds

1Invest in shares and stocks
2Represent the largest category of mutual funds
3Investment objective is long-term capital growth with some income
4Many different types of equity funds because of different investment objectives

Foreign / International Funds

1An international fund (or foreign fund) invests in the equity of companies which are outside the home country

Sector Funds

1These are targeted at specific sectors of the economy – financial, technology, health, etc.

Index Funds

1This type of mutual fund replicates the performance of a broad market index such as SENSEX or NIFTY
2An index fund merely replicates the market return and benefits investors in the form of low fees.

1 What is my investment objective? For example, is it for my retirement or for my children’s education? How much funds do I need and when do I need them?
2. How much can I afford to invest, after setting aside funds for daily needs and savings for emergencies? Do I intend to invest in single sum or fixed sums on a regular basis?
3. How much return on investment do I need, after taking into consideration the effects of inflation, to meet my investment objective? 4. What is my risk profile?
5. Does the product I am considering meet my investment objective and needs? Which benefits are guaranteed and which are not?
6. What is the potential return offered? Is it realistic? [Be careful of verbal promises and guarantees of high returns. Make it a point to understand what is guaranteed and what is not, and insist on written confirmation from the representative]
7. When are the proceeds payable? Can I afford to stay invested for that duration? Do I need the proceeds earlier?
8. Am I comfortable with the level of risk that comes with the product I am considering? How much loss I am prepared to incur? What are the potential losses in the worst-case scenario for the product I am considering?
9. Have I read and understood all the information, including the prospectus / term sheet / benefit illustration and product summary, contracts, warnings, exclusions and disclaimers, terms and conditions, relating to the product I am considering?
10. Is the financial adviser / representative regulated by the Regulator?
11. Are there alternative products that offer similar benefits and risks to those of the product I am considering? How is the product compared to these alternative products?

Do compare key areas like the scope of benefits, risks levels and total costs.

Investing in funds may not be for everyone. For example, they may not be suitable if you:

1Want potentially higher returns BUT are not prepared to take the risk of losing a substantial part of the money invested.
2Do not understand returns calculation or are unclear about factors and scenarios that can affect returns; or fund’s investment objective, strategy or approach.
3Do not understand the risks associated with the fund. Some funds use financial derivatives to hedge risks and / or to improve performance. Investors should be aware of the risks associated with the use of financial derivatives.
4Are not prepared to have your money tied up for long periods of time. As funds are exposed to market ups and downs, investors who stay invested long enough may be better able to ride out the downturns.
5Are not familiar with the fund manager and fund’s track record.

Asset Classifications of Mutual Funds

There are different types of funds available with its own investment objective and investment approach or strategy (i.e.) capital appreciation or income. The fund manager decides fund’s investment strategy and what assets to buy / sell. Funds may be divided into three main categories-shares, bonds, and balanced funds (combine shares & bonds). Aside from shares and bonds, funds can invest in assets or combination of assets such as:

1Financial derivatives

2Cash or cash-equivalent products

3Real estate

4Units in other funds

Funds offered to retail investors are not permitted to invest in physical commodities directly. They may however obtain exposure to commodities by using financial derivatives. It is important to choose a fund that meets your investment objective and risk profile. The diagram below shows the potential risk and return profile of different types of funds:

Note that the chart above is for general guidance only. Bond funds which focus on emerging market government bonds or high yield corporate bonds may not be safer than funds that invest in ‘blue chip’ equities. This is because high yield corporate bonds may expose the fund to significant credit risks.

Key considerations before buying a fund

Funds differ in terms of investment objectives, strategies, risks and costs. Think if you want the fund to provide regular income or initial capital to grow. Choose one that matches your investment objectives and risk profile. When choosing a fund, consider the following:

1Your needs and goals / objectives, personal circumstances and risk profile
2Find out more about the unit trust you are considering to:

aEnsure that fund’s investment strategies are in line with your investment objective
bEnsure you understand all the risks and are comfortable with your risk profile
cYou should be comfortable that the fund manager has the necessary resources, experience and skills to manage your investment. Check that both the firm and the individuals managing the fund have a credible performance track. However, do note that past performance is not necessarily an indication of future performance.

3Find out about alternative investment products and compare their risk-return profile and features with the product you prefer.

The ownership interest in a company of holders of the common and preferred stock is known as equity. A stock market is a public market for trading of company shares at an agreed price; these are securities listed on a stock exchange.

The shares are listed and traded on stock exchanges which facilitate the buying and selling of stocks in the secondary market. The prime stock exchanges in India are The Stock Exchange Mumbai, known as BSE and the National Stock Exchange known as NSE. The purpose of a stock exchange is to facilitate the trading of securitie s between buyers and sellers, thus providing a marketplace. Investing in equities is riskier and definitely demands more time than other investments.

There are two ways in which investment in equities can be made:

1Through the primary market (by applying for shares offered to the public)
2Through the secondary market (by buying shares listed on the stock exchanges)

Having understood the markets, it is important to know about selecting a company, a stock and the right price. A little bit of research, some diversification and proper monitoring will ensure that the investor earns good returns.

In order to invest in shares, it is necessary to understand the term “Dematerialisation of Shares”, as almost all shares are now in “Demat” form. Earlier, physical share certificates were issued, which are now converted to Electronic form. For this, an understanding of the depository system becomes essential.

A depository is an organization which holds securities (like shares, debentures, bonds, government securities, mutual fund units etc.) of investors in electronic form at the request of the investors through a registered Depository Participant. It also provides services related to transactions in securities. It can be compared with a bank, which holds the funds for depositors.

At present two Depositories viz. National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) are registered with SEBI.

A Depository Participant (DP) is an agent of the depository through which it interfaces with the investor and provides depository services. Public financial institutions, scheduled commercial banks, foreign banks operating in India with the approval of the Reserve Bank of India, state financial corporations, custodians, stock-brokers, clearing corporations / clearing houses, NBFCs and Registrar to an Issue or Share Transfer Agent complying with the requirements prescribed by SEBI can be registered as DP. Banking services can be availed through a branch whereas depository services can be availed through a DP. It is now compulsory for every investor to open a beneficial owner (BO) account to trade in the stock exchange or apply in public issue.

Benefits of availing depository services include:

1A safe and convenient way to hold securities
2Immediate transfer of securities with no stamp duty
3Elimination of risks associated with physical certificates such as bad delivery, fake securities, delays, thefts etc.
4Reduction in paperwork involved in transfer of securities
5Reduction in transaction cost
6No odd lot problem, even one share can be traded
7Nomination facility
8Change in address recorded with DP gets registered with all invested companies electronically eliminating the need to correspond with each of them separately
9Transmission of securities is done by DP eliminating correspondence with companies
10Automatic credit into demat account of shares, arising out of bonus / split / consolidation / merger, etc.
11Holding investments in equity and debt instruments in a single account.

Shares are issued by companies to raise capital or financing from investors. When you buy a company’s shares, you become a shareholder of the company entitled to a share of dividends that are declared and paid. If the company you have invested in is wound up or liquidated, you are entitled to any assets that remain only after company’s creditors are paid.

Shareholders earn returns when they receive dividends and if they decide to sell their shares when the prices of the shares gain in value. Dividends are paid out of the company’s profits. Not all the profits may be distributed. Companies may choose to re-invest profits generated from their operations into their business. A company’s share price reflects, amongst others, its growth prospects and future earning potential.

Investors buy shares in the expectation that the share price will rise. Some may also buy shares as a hedge against inflation or for dividend income.

Apart from market driven price fluctuations, a company’s share price will be under pressure if the company performs badly and / or gets into serious financial difficulties. Shareholders bear more risk than bondholders and other creditors if the company fails and is wound up. In the worst case scenario, a shareholder may lose up to the amount invested in the company.

Other risks include companies requesting for a trading halt or trading suspension for the purpose of disseminating material information to the investing public. SGX may also suspend trading of a company’s shares in certain circumstances. As an investor, you should not overlook rights issues and other corporate actions. Leverage trading can be risky and can lead to unlimited losses depending on the positions you take.

Share investing may not be suitable for everyone. For example, shares may not be suitable if you:

1Are not familiar with or are unclear about the factors and scenarios that affect share prices
2Do not understand the risks associated with shares
3Want potentially higher returns but are not prepared for risks
4Cannot build a sufficiently diversified portfolio of assets
6Are not prepared to leave your money tied up for long periods of time
7Do not have the time and resources to monitor the markets, corporate performance as well as react to corporate actions such as rights issues.

Share prices are driven by economic and market conditions, as well as industry and company specific conditions. Much of the price movement may be explained by the performance of overall market. But not all shares react in the same way to the same set of economic, market or business conditions.

Blue chips, large caps, growth or cyclical shares

Shares are often sorted into categories based on the characteristics – blue chips and growth or cyclical shares. Such categorization is based on market conventions and may change over time.

A company’s market capitalization is the total market value of its shares. Shares may also be sorted by market capitalization – small caps, mid-caps and large caps. What constitutes a small, mid or large cap depends on the market you are interested in. Stocks with smaller market capitalization may be newer companies, and not very well-researched.

1Be clear about your investment objectives first (i.e.) building up capital or looking for income, and how your risk profile. This will narrow down your search.
2nvestors may use fundamental analysis or technical analysis or a mixture of both when deciding which shares to invest in.
3Be familiar with the company – business operations, growth outlook, the type of industry, its financial performance, corporate governance, whether there are any weaknesses and other factors which could affect its performance and share price.

Companies may carry out various corporate actions such as bonus or rights issues and share buybacks. As a shareholder, find out how these corporate actions will affect you.

1The broker must be registered with SEBI.
2The stock exchanges provide details of the complaints pending/resolved against the brokers. An investor can peruse this list before making his choice.

1The first criterion is to obtain a PAN Card. This is mandatory for all investors.
2The next step is to open a bank account and a demat account. The demat account is normally linked to a bank account in order to facilitate paying in and out of funds and securities.
3Once these are obtained, the next step is to select a broker and fill a KYC form and enter into a broker-client agreement. 4The broker then allocates a unique client ID, which acts as his identification. However, the PAN Number acts as identification across the markets and exchanges as a single investor identity.

Exchange traded funds (ETFs) are open-ended investment funds listed and traded on a stock exchange. Your money is pooled with money from other investors and invested according to the ETF’s stated investment objective.

An ETF’s objective is to produce a return that tracks or replicates a specific index such as a stock or commodity index. They are passively managed by ETF managers and do not try to outperform the underlying index. Hence, ETFs have fees and charges that are usually lower than those of actively managed investment funds.

ETFs may have complex structures. They may be structured as cash-based ETFs or as synthetic ETFs, which involve the use of derivatives.

You invest in an ETF by buying units in the ETF. There is capital gain when the price of the units rises above the price paid for them. Some ETFs also pay dividends.

1There are many ETFs to choose from. If you buy an ETF which tracks a share index, you gain exposure to the performance of the index.
2You can gain this exposure without having to spend more money buying the component stocks of the index. In addition, fees and charges for ETFs tend to be lower than for actively managed investment funds as ETFs have lower management fees. There is usually no sales charge, although any transactions on the Exchange would still be subject to brokerage commissions or transfer taxes.
3As ETFs are traded on a stock exchange, you can buy and sell units of ETFs throughout the trading day.

Investing in ETFs may not be for everyone. They may not be suitable if you:

1Want potentially higher returns BUT are not prepared for variable returns which include the risk of losing all or a substantial part of original investment amount
2Do not understand how returns are determined or if you are unclear about the factors and scenarios that can affect returns
3Do not understand the risks associated with the ETF. Investors should be aware of the risks associated with the use of derivatives by ETFs
4Are not prepared to leave your money invested for long periods of time. A longer time horizon is generally preferred to ride out short term price fluctuations.
5Are not familiar with the ETF manager and the ETF’s track record.

ETFs are not principal-guaranteed and may lose all or a substantial amount of the money invested in certain situations. The risks of investing in ETFs are described in the prospectus and product highlights sheet.

1Know about transaction charges like brokerage charges and clearing fees
2There are usually no sales charges for ETFs. However certain charges payable are fees that the fund manager, trustee and other parties charge to the ETF. Although the fees are paid by ETF and not investor, they will increase tracking error.

ETFs differ in terms of complexity, investment objectives, strategies, risks and costs.

When choosing an ETF, consider the following:

Defined contribution scheme opened to any Indian Citizen between the age of 18 and 55 years.

The individual invests a certain amount in a pension scheme till he retires. At retirement, he is allowed to either withdraw the money that has accumulated or buy an immediate annuity from an insurance company to generate a regular income or do both.