NRIs see arbitrage play in rupee deposits

With domestic interest rates hardening even as fixed income returns fall globally , there is a sudden spurt in remittances from non-resident Indians (NRIs) seeking to arbitrage between local and international rates. Indians are borrowing overseas at low rates and are remitting funds in India for investments. As on June 30, total NRI deposits on various banks was pegged at $53 billion. With the rupee depreciating over 18% in the last six months, non-residents are getting more for the dollar than ever before. Avijit Nanda, president Times of Money, told TOI, "NRIs are seen borrowing overseas at Libor minus rates and invest in

Indian equities, mutual funds and real estate sectors. The FCNR rate for NRI deposits has increased by 125 basis points (Libor+125 basis points) effective from November 23, 2011, thus encouraging NRIs to open deposits in India. Our estimates are that the remittance flows into India have gone up 20-25 % when compared to the same period last year. NRIs are making the most of better interest rates in India."

Private sector banks like Kotak Mahindra Bank and Federal Banks have witnessed over 40% and 30% surge in remittances respectively from the year ago period. According to World Bank estimates, India received $55 billion in remittances in 2010 and Gulf region accounts for almost half of that.

UAE, with two million Indians alone contributed around $6 billion last year. This year, remittances from Gulf are likely to break last year record. "We are also seeing trend where by NRIs are retiring the mortgage loans in India by remitting more out of own funds or out of overseas borrowings. Coupled with the weak rupee they enjoy the interest differential as well, since interest rates are low overseas as compared to India," said, Sudhir Kumar Shetty, chief operating officer, global operations, UAE Exchange, whose global remittance volumes in 2010 were $17 billion. "During the last couple of weeks, we have witnessed a 30% increase in remittance. These are from people who send money for investments rather than domestic commitments," adds Shetty.

"I took a personal loan of 300,000 dirhams (Rs 42 lakh) from a local bank in Dubai at 8% interest rate and bought a flat in Noida. Indian banks were asking me to pay 12% interest rate along with processing fees. The best part is that I don't have to keep the house mortgaged and I will repay the loan in 5 years. Besides, I save interest of 4% annually, translating to overall saving of Rs 13.5 lakhs," said S Pathak, who works with a local media firm based in Dubai.

Although official figures are not available, banking sources say that many Indian are seeking fresh personal loans and office advances in UAE to invest in India.

Source: http://timesofindia.indiatimes.com/business/india-business/NRIs-see-arbitrage-play-in-rupee-deposits/articleshow/10938750.cms

Mutual funds can help build your retirement kitty

For your golden years to be pleasant, the quantum of retirement fund should be such that the returns generated from it can cater to your monthly expenses. In India, retirement planning is synonymous with buying pension plans. However, there are several other options available.

Pension plans

Pension plans are offered by a variety of life insurance companies. On maturity, the corpus accumulated is invested for generating a regular income stream, which is referred as pension or annuity.

Pension plans are also classified as 'immediate annuity' plans and 'deferred annuity' plans. An immediate annuity plan is where you make a single premium payment and from the subsequent year, your pension payout starts.

Deferred annuity is where the premiums are paid (either as single or regular payment) and the payout is ‘deferred’ up to a time, which is decided upon by the policyholder. The period between the start of policy and vesting is called the deferment period. One has the option of withdrawing one-third of the maturity amount at one go, but the remaining amount has to be compulsorily invested in an annuity (paid out in regular instalments). As of now, the maturity value from pension plans are taxable, but that will change with the advent of the Direct Taxes Code.

Ulips

Unit-linked insurance plans have caught the fancy of investors, especially those built to last like whole-life endowment plans. These plans provide life cover until 99 years and one can withdraw systematically from these plans. In the case of traditional plans, they have an inbuilt payout mechanism and one can utilise the payouts towards pension.

Such plans could work well over the long haul. A suggested tenure for traditional plans would be 15-plus years and for 10 for Ulips. This avenue is tax-efficient; the payouts are tax-free and the premium paid also qualifies for tax benefit under Section 80C of the Income Tax Act with a maximum limit of R1 lakh.

Mutual Funds

Equity mutual funds. Equity investments over the long term turn out to be extremely fruitful. Keeping out of equities could make your portfolio extremely conservative and the returns could go negative once inflation is factored in.

Debt mutual funds. These should be typically used for emergencies. However, one can also invest returns accruing out of maturity/profit booking from equity MFs into debt funds. One can conduct systematic withdrawals from debt MFs towards pension.

Gold MFs/ETFs. While gold can provide the much need balance to the portfolio, one should hold not more than 10% exposure in this asset class.

Reverse mortgage

In a reverse mortgage, retirees can pledge a property they already own (with no existing loan on it). The bank in turn gives them a series of cash flows for a fixed tenure. The homeowner's obligation to repay the loan is deferred until the owner dies, the bank bears the risk that the outstanding will exceed the market value of property then, and will not ask for the difference from the heirs.

A balanced approach is important for retirement planning and maintaining the risk profile at ‘moderate’ levels is vital

Source: http://www.financialexpress.com/news/mutual-funds-can-help-build-your-retirement-kitty/882181/0

Pramerica Mutual Fund introduces Power SIP under two schemes

Pramerica Mutual Fund has decided to introduce Power SIP under Pramerica Ultra Short Term Bond Fund and Pramerica Equity Fund effective from 1 December 2011.

Pramerica Power SIP:

Pramerica Power SIP is an investment plan that provides for subscriptions into Pramerica Ultra Short Term Bond Fund (hereinafter referred to as the source scheme) in a lump-sum and via monthly SIP and subsequently switching the investment into Pramerica Equity Fund (hereinafter referred to as the target scheme) on a recurrent basis on 2nd business day of every month.

While the monthly SIP instalments in the source scheme would be inform, the amount of switches into the target scheme would be based on a value derived at the end of each month using a proprietary model developed by the AMC based on BSE Sensex PE ratio (herewith referred to as Pramerica Multiplier). For this purpose the PE mean is calculated taking a weighted average of the average PE of BSE Sensex since 1991. The PE mean is then compared with the current BSE Sensex PE and based on the variation between the two, Pramerica Multiplier is determined. The Pramerica Multiplier could range from 0 to 4 and accordingly, the switch amount into the target scheme each month could vary from Nil to 4 times the monthly SIP instalment in the source scheme.

Minimum initial (lumpsum) investment in source scheme: 12 times the monthly SIP instalment in source scheme.

Minimum SIP instalment in source scheme: Rs. 1000 per month and in multiples of Rs. 500 thereafter.

Minimum SIP tenure in source scheme: 36 months.

Whenever the value of investment in source scheme falls to less than 6 SIP instalments, the investor would have to replenish (top up) the investment in the source scheme by making additional subscription equal to minimum 6 SIP instalments. If the balance is less than applicable switch amount in the target scheme, the entire balance in source scheme would be switched out to target scheme

Source: http://www.indiainfoline.com/Markets/News/Pramerica-Mutual-Fund-introduces-Power-SIP-under-two-schemes/4056071019