02 November 2013

7 ways to wisely spend Diwali bonus



For those of you who don't have a clear plan, here are some of things that you can do with your Diwali bonus.
It is Diwali and if Goddess Lakshmi has bestowed her blessings on you, there is a good chance that you are or would be sitting on a hefty Diwali bonus in your bank account. While most of us love to see that money in our bank account, we are often a little lost about what to do with it. With no clear strategy on how that money should be used and retailers wooing you everyday with best deals on just about everything, you may often end up splurging on things which perhaps you could have done without.
This realisation may dawn eventually but the damage would have already been done.
So how can one use this once a year opportunity to gain on the financial front rather than splurge it on silly things? The common tendency to treat a bonus is to think of it as a windfall gain and hence view it differently from regular income and savings.
In behavioural finance, this tendency is called mental accounting where you treat money received from different sources differently. The key point to consider is that money is fungible and regardless of its origins or intended use, all money is the same. So if you have some goals you are working towards, your Diwali bonus can be used to speed up these goals.
For those of you who don't have a clear plan, here are some of things that you can do with your Diwali bonus.
The author Aditya Prasad is chief evangelist at Perfios.com 


1. Pay off high cost debt
It is not uncommon to see people carrying credit card debt and using any surplus to invest, if not spend. If you are paying 30-36 per cent as interest on your credit card and investing in a fixed deposit or other similar investment, which will earn you 8 per cent, are you not better off by paying off your debt rather than investing?
Paying off high cost debt should be the top most priority if you receive a lumpsum amount.
Given that interest rates are rising, your home loan too may become costlier in future. If there is no other need for the money, you could plan to clear off a part of your home loan by making a prepayment. This will not only reduce the tenure but also amount to a huge savings in the interest outgo.



2. Save for the rainy day
It is prudent to have at least 4-6 months expenses set aside towards any contingency needs. However, people are often not able to do that through their regular savings because of commitments towards EMIs, insurance premiums, SIPs etc.
Or they may take years to build a contingency fund. A lumpsum bonus can be used to create a contingency fund whereby you would have some cushion in case of any eventuality such as loss of job, medical emergency and the like. 



3. Buy insurance
Underinsurance or no insurance for life, health and disability is perhaps the most common folly that individuals commit. Life is unpredictable and one can never be prepared enough for what may be in store tomorrow.
People may postpone the decision to buy insurances because committing large amount of money in one shot does not find favour with most. They would rather get the insurances in place over a couple of years.
A bonus payout is a good opportunity to get yourself adequately insured. It is the best gift you can give your family. 

8 stocks that surged over 100% in last five years :BS Research Bureau

Markets started the festive season on a positive note with the S&P BSE Sensex hitting a new all-time high after five years and 10 months on Friday.

Buying frenzy a day earlier, which was also the last day to roll over positions in the F&O segment to the November series saw the markets registering Rs 5-lakh crore turnover for the first time ever.

While the indices have scaled up to a new high, investors have mostly preferred to stay with the defensive pack - pharmaceuticals, fast moving consumer goods (FMCG) and information technology (IT) stocks. Automobile stocks, too, found flavour with the investors.

Of the eight stocks that saw a spectacular gain of over 100 per cent in the past five years, three stocks belong to the automobile pack, two each are from the pharmaceutical and the fast moving consumer goods (FMCG) space and a lone ranger from the information technology pack.

Among individual stocks, Sun Pharma tops the list with a gain of 444 per cent, followed by TCS (up 323 per cent), Hero MotoCorp (up 204 per cent) and ITC (up 185 per cent).

On the other hand, BHEL (down 71%), Tata Steel (down 62 per cent), Jindal Steel & Power (down 53 per cent), Tata Power (down 47 per cent) and NTPC (down 45 per cent) were some of the losers in this period.

Points out Deven Choksey, MD & CEO, K R Choksey Shares and Securities: “Overall, the market momentum is likely to remain intact in the next month though there can be some intermittent corrections, but support buying is likely to kick-in. Nifty is likely to remain in the range of 5,900 - 6,400. Sesa Sterlite, Tata Motors and Reliance Industries seem investment worthy.”

Raghuram Rajan has indeed made a difference

He endorsed transparency and financial stability in addition to issues related to inclusive growth and development, write Puran Singh and Nupur Pavan Bang.
"I am not a superman", he says, but the reaction of markets to his initiatives has been super indeed. He took over the office of RBI Governor amongst much hustle and media gush on September 4, 2013. Having predicted the financial crisis and carrying an image of an internationally recognised economist, Raghuram Rajan was seen as the savior for the Indian economy that had multiple economic issues to grapple with.
He had his guns ready and fired right away on the day he took over. He endorsed transparency and financial stability in addition to issues related to inclusive growth and development. A range of measures were announced that included elimination of license requirements for new bank branches, appointment of committee to assess RBI’s approach to financial inclusion, allowing rebooking of cancelled forward exchange contracts by exporters and importers, issue of cash settled ten year interest rate future contracts, interest rate futures on overnight interest rates, special concessional window for swapping FCNR (B) dollars, increase in foreign borrowing limit of banks to 100 per cent of unimpaired Tier I capital, etc.
On Financial Infrastructure front, he expressed an intention to implement Electronic Bill Factoring Exchanges to facilitate prompt bill payment facility to Micro Small and Medium Enterprises (MSMEs). He acknowledged the need to have Debt Recovery Tribunals and Asset Reconstruction Companies for efficient loan recoveries.
For households, the governor announced that they will issue Inflation Indexed Savings Certificates, come out with national giro-based Bill Payment System to facilitate bill payments any time, start mini ATMs operated by non-bank entities for better financial access.
These measures were well received by markets as the key economic indicators improved swiftly. Depreciating rupee that had been a cause of concern for some time, gained considerably from a low of Rs 68 per dollar on August 29 to stabilise at Rs 62 per dollar by September 16.
Sensex rode on investor expectations of favourable policies by the RBI and rallied by a maximum of 700 points, eventually crossing the psychological mark of 20,000 points. Forex reserves also remained stable during the time. Gold imports remained low at 7 tons in September helping India's current account deficit. Only thing that remained unleashed was inflation that rose to 6.46 per cent for the month of September 2013 (see Figure 1).
In order to arrest inflation, in his first monetary policy review on September 20, Rajan increased the interest rate to 7.5 per cent (by 25 basis points), against the common expectations. This might have irked Finance Minister P Chidambaram, but he remained quiet, while he had openly criticised Rajan's predecessor Subbarao for a similar move.
Rajan maintained that controlling inflation was important which eventually provided a growth environment pretty much in line with his predecessor’s line of thinking. He made up for the increase in interest rate to some extent by rolling back the rate on Marginal Standing Facility (MSF rate is the rate at which the RBI lends emergency funds to the banks) to 9.5 per cent from 10.25 per cent earlier (it helped reduce the cost of funds to banks and hence their lending rates).

Diwali on Dalal Street: Sensex closes at record high

In pre-Diwali cheer, the Sensex hit its third straight record closing high at 21,196.81 points on Friday amid continued foreign fund buying and renewed optimism about the economy.

In intra-day trade, the benchmark index of Indian stock markets had surged to an all-time high of 21,293.88, surpassing the previous record of 21,206.77 reached on January 10, 2008.

Bank and auto stocks were at the forefront, with State Bank of India, Mahindra & Mahindra, ICICI Bank and Tata Motors taking the Sensex higher. Realty and metal sectors too advanced.

The US Federal Reserve's decision this week to continue with its bond-buying stimulus programme eased concerns about foreign funds pulling out capital from emerging markets. The Sensex has been propelled by foreign inflows of around $3.5 billion (Rs 21,609 crore) since.

Union finance minister P Chidambaram said, "The markets seem to be happy, but I would caution investors against excessive exuberance."

Chidambaram, however, hinted that the worst for the economy, which was reeling two months ago when the rupee hit record lows, may be over.

"Core sector growth... strong monsoon and healthy exports augur well for economic growth. There are still many challenges, most important being inflation and reviving investment. But I think there will be green shoots even in investment.”

Chidambaram said he was confident India's current account deficit - the gap between dollar inflows and outflows and the broadest measure of trade - could be contained at $60 billion (Rs 3.7 lakh crore) this fiscal, from an earlier figure of $70 billion.

New all-time high when Nifty hits 6700: Rakesh Jhunjhunwala

Despite the euphoria on Dalal Street, billionaire investor Rakesh Jhunjhunwala says it doesn't feel like an all-time high market. "I think the real new high will be when (Nifty) goes to 6700," he told CNBC-TV18 in an interview.

The BSE Sensex marked a record high on Friday as blue-chip shares including Tata Motors gained on strong foreign inflows. Foreign investors bought Indian shares worth Rs 1,875 crore on Thursday, their biggest single-day purchase since May 21, remaining net buyers for a 20th consecutive session, bringing their total buying to nearly Rs 18,191 crore during that period

The BSE index rose to as high as 21,263.59, up 0.4 percent on the day and surpassing its previous high of 21,206.77 hit on January 10, 2008. Jhunjhunwala feels real new highs will be seen once retail investor participation increases. He says India is still an underweight for FIIs. However, he acknowledges that the economy is in much better situation than a few months back. "We are seeing some green shoots in the economy,” he says.

 Jhunjhunwala says the market expecting Narendra Modi-led BJP to come to power in 2014.

  Talking sector-specific, he says the pessimism in PSU banking was overdone.

Investment Focus - Franklin Dynamic PE Fund: Invest :: Business Line

Wary of investing in equity funds because the Sensex is close to a new high and you have missed the rally? You can still consider FT India Dynamic PE fund. The fund’s unique feature is its ability to dynamically shift its portfolio between equity and debt, based on stock valuations.
This fund-of-funds redirects your money into two good funds from the Franklin Templeton stable – Franklin Bluechip Fund and Templeton Income Plan. FT Dynamic PE Fund pegs its equity-debt mix to the Nifty’s price-earnings multiple. If the Nifty PE is below or equal to 16 times, the fund can invest its entire portfolio in equities. If the PE moves above 16 times, it cuts equity allocation to 50-70 per cent. Should the Nifty PE move beyond 24 times, the fund can shift into debt and out of equities. This translates into selling stocks at highs and buying them on declines.
By end-September, the fund held 75 per cent in Franklin Bluechip and 25 per cent in Templeton India Income Fund. The key argument for investing in the FT Dynamic PE Fund is its ability to keep up with balanced funds during bull phases, while containing losses well during bear phases. Consider its track record. The fund’s one- and five-year returns of 5.7 and 16.3 per cent are on par with the balanced funds category. For three years, its return of 5 per cent is well above both balanced and equity large-cap funds. But where the fund is head and shoulders above competition is in shielding its investors from during market falls. During the 2011 crash, this fund lost just 5 per cent, while balanced funds, on average, lost 16 per cent. Equity funds averaged a 24 per cent loss.

CONSERVATIVE APPROACH

Both the funds that FT Dynamic PE Fund invests in have an established long-term record. Franklin Bluechip follows a buy-and-hold strategy and avoids going overboard on highly priced stocks. This has meant low weights in sectors such as FMCG and pharma, which has moderated Bluechip’s one-year return. Over the long term, it is a consistently good performer beating its benchmark around 80 per cent of the time.
Templeton Income too, follows a conservative approach, investing primarily in government securities and highly-rated corporate bonds. With its medium-to-long term investments, the fund has been a middle-of-the-road performer in the current rising interest rate scenario. It has, however, done better than its benchmark. Should interest rates correct hereon, the fund’s strategy could pay off. The strategy of both these funds indicates that FT Dynamic PE is suitable for conservative investors with a long-term investment horizon. But do note that FT Dynamic PE Fund does not offer the tax benefits of a pure equity fund. Since it is a fund-of-funds, returns will be subject to both short-term and long-term capital gains tax.