Financial Products

Financial Products — No Comments
1
Dec 11

PPF Overview

If you are above 25 years of age and never heard about PPF than you are missing an opportunity to earn good returns on your investment as PPF has many benefits and one should start making small investment into PPF as early as possible so to get maximum benefit. Given below are some important points about PPF -

  1. The full form of PPF is Public Provident Fund.
  2. Public Provident Fund account can be opened by an individual or a minor through the guardian, however one cannot open joint account and also HUF cannot open PPF account.
  3. One can open PPF account either through post office or through banks which are eligible for opening Public Provident Fund account.
  4. PPF Limit or the amount which one can deposit into PPF account is minimum 500 rupees and maximum PPF limit is 100000.
  5. PPF is opened for a period of 15 years, in other words the duration of it is 15 years. After completion of 15 years it can be further extended for a period of 5 years.
  6. The current rate of interest on PPF is 8 percent per annum which is proposed to be increased to 8.60 percent and it the rate of interest compounded which means you also get interest on interest after 1st year.
  7. One can withdraw from PPF after five years from the end of the year in which the initial subscription was made, so for example if you have opened the PPF account on 1st April 2007 you can withdraw only after 1st April 2012.
  8. Investment in PPF is tax deductible and also the interest earned on PPF is not taxable which makes PPF even better than fixed deposit as interest on fixed deposit is taxed and therefore though rate of interest on fixed deposit is higher but if one calculate it after tax than PPF gives higher return than fixed deposit.
Financial Products — No Comments
28
Nov 11

Features of Insurance

The decision whether to buy an Insurance policy now or later always confuses the people because at one hand you have to pay a premium which is an expense and on the other hand you have the benefit of your loss getting covered by insurance company in the event of any contingency. Before deciding whether to take insurance or not one should know the features of insurance, given below are some of the features of insurance –

  1. Insurance (excluding life insurance which tends to pay after certain period of time) is not an investment rather it is a hedge against the future probable losses.
  2. It gives you the comfort that in the event of any loss from unforeseen events will be compensated by the insurance companies.
  3. One has to pay premiums regularly to the companies providing insurance in order to enjoy the benefits of insurance.
  4. It can be of many types like life insurance, fire, marine, health insurance and so on and one can take any of the above polices depending on the risk with which an individual is exposed to.
  5. Insurance policies can be modified and offered to people depending on their risk profile and the need of the insurer.
  6. There is a limit to the amount by which an insurance company will compensate for the loss incurred by the insurer. The amount is mentioned in the insurance policy and the more the amount of insurance cover the more will be the premium which one has to pay to the company.
  7. A person can take more than one policy, in other words there are no restrictions on the number of policies which one can take.
Financial Products — No Comments
5
Jul 11

Real Estate Advantages

Real estate investment is always a difficult decision for the investor because when you are purchasing real estate it’s not only an economical decision but also a emotional decision, since many people do not give up the real estate even if they are in financial crisis. Given below are some of the advantages of real estate –

  1. Since real estate investment involves huge sum of money, the investor do it taking all things into consideration unlike stock which are sometimes purchased irrationally without doing proper research.
  2. If you have real estate than it is easier to get loans from the banks or financial institutions, because banks accept real estate as mortgage when it comes to grant of loan to individuals.
  3. Real estate investment is often tax deductible and therefore real estate investment is preferred by the salaried class people as they can save lot of taxes due to real estate investment.
  4. Real estate investment does not involve paying the whole amount upfront, rather one has to pay it in installments, therefore people who do not have enough money can also go for real estate provided they have constant source of income to pay those installments.
  5. The resale value of real estate investment is an important advantage of this class of investment (provided you have not bought it at astronomical prices) because unless there are some unforeseen events the resale value of real estate over a period of 5 to 10 years is higher than the purchased price of the real estate
Financial Products — 1 Comment
12
May 11

Growth Reinvestment Mutual Fund

A person who is investing in mutual fund is either looking for constant return which is dividend or he or she is looking for capital appreciation of the money invested in mutual funds. People who are looking for capital appreciation should invest into growth reinvestment mutual fund.

A growth reinvestment mutual fund is one in which the investor do not receive any dividend from mutual fund in which he or she has invested. In stock market blue chip companies pay regular dividends but a person who has invested into growth reinvestment mutual fund is basically saying that I do not want those dividends; I rather want that dividend to be reinvested into equity again. In case of dividend re-investment option, the mutual fund declares dividend, but the investor who has selected the reinvestment option does not get any dividends but the amount of that dividend is re-invested into the same fund.

Growth reinvestment mutual fund is ideal for those investors who are young or those who do not want constant income and are willing to forgo the dividend in order to gain in future from capital appreciation. Therefore any person who is looking to select this option should first look into his or her investment objective, and also particulars of the mutual fund in which one is planning to invest and then select that mutual fund.

Financial Products — No Comments
25
Feb 11

Credit Derivatives

Derivatives are not only limited to stock market or commodity market, credit derivative is another example of why derivatives are being used by the people. Derivative can be defined as a contract or an agreement for exchange of payments, whose value is derived from the value of an underlying asset. In case of credit derivative the value of derivative is derived from credit risk on an underlying bond, loan or any other debt. In a credit derivative the asset on which credit is taken remains with the owner and the volatility associated with such asset is transferred to the party which is taking the derivative. The owner continues to hold the underlying asset without risk or volatility. It is the lender who takes the credit derivative in order to hedge against risks that comes with loans or debts.

Credit derivative covers the risk which arises when the party which has taken the credit becomes bankrupt or the borrower does not pay the obligation on time to the lender of the money; borrower pays only half or notional amount due to bankruptcy and other such risks. The lender will have to pay premium in order to transfer the all the above risks. The counterparty will benefit if the borrower pays the money on time because he or she will receive premium. In other words premium represents the reward for the counterparty.

← Older Entries