Write the will right

For hassle-free transfer of wealth from one generation to another, it is essential that individuals focus on estate planning.

Family fights over the division of assets are often the subject of movie plots and soap operas. Such disputes are an increasing occurrence in the real world too.

In the last two decades, individuals have accumulated a lot of wealth and hold a number of assets, but they do not devote equal attention to estate planning.

For hassle-free transfer of wealth from one generation to another, it is essential that individuals focus on estate planning.

What is estate planning?

Estate planning is concerned with the distribution of your assets according to your wishes or preferences after your passing.

Nominate

The first and most simple step most of us can take to make sure our wealth is passed on is to nominate beneficiaries for all of our financial assets.

While buying insurance it is mandatory to fill in the nominee's name. In mutual funds too, the application form allows for nomination and investors must use it.

Even if you have not mentioned a nominee at the time of investing, you can do so later.

Write a will

The easiest and simplest form of transferring wealth to intended beneficiaries is by writing a will. The will takes effect upon the death of the testator (the person who wrote it).

Any person over the age of 18 and in sound mind can draft his own will. It is not mandatory that it should be written by a lawyer.

A will can be written on plain white paper in any style. According to the Hindu Succession Act, there is no formal style for writing a will. The succession of property may differ based on the religion and customs of the testator.

An individual can also register the will. In Tamil Nadu, it costs less than Rs 1,000 to register a will with the Registrar office. Registration prevents tampering of the will as a copy is preserved with the registrar.

Conditions

What assets can you will?

All assets accumulated through your own earnings — property, jewellery, land, shares, deposits, cars and cash along with obligations and liabilities — can be passed on through a will. For inherited property, a Hindu can only distribute his share of assets to his legal heirs.

The person who is making a will should elaborately describe assets and identify them.

If it is immovable assets, it is better to mention the location and year of purchase. To avoid litigation in future, the testator should legibly affix his signature at the end of the document with date in the presence of the witness.

The will needs to be attested by two witnesses and it should be signed in the presence of the testator. If the will runs into pages, the testator needs to sign all the pages, whereas witness need sign only on the last page. 

The witness should know the contents of the will.

While writing a will, it should be remembered that a new will always supersedes an existing document.

Review

It is important for the testator to review the will periodically and particularly in the event of change in the family situation, such as birth, divorce, marriage and addition to the wealth.

Probate

A probate is official recognition of the original will. As per the Indian Succession Act 1925, in cities such as Chennai, Kolkata and Mumbai, it is mandatory to probate a will. In the case of financial assets, probate is necessary. However, finance companies and bankers say that in the case of deposits, proceeds may be paid to the nominee, he is legally responsible to assign benefits as per the will to beneficiaries.

Normally the nominee or the beneficiary applies to the court for grant of probate.

The time taken to complete the process may be anywhere between six months and three years.

On the demise of the investor, to effect the transmission of shares, units or other financial assets in favour of the nominee, the following documents will be required:

A letter from the nominee claimant to the Fund or Registrar requesting for transmission of units. A format of the letter is available at the Registrar and Mutual Fund web sites.

Death Certificate in original or a photocopy duly notarised or attested by a gazetted officer or a bank manager.

Bank account details of the new first unit holder i.e. the nominee along with attestation by the bank branch manager or a cancelled cheque bearing the account details and account holders name.

The procedure is much the same for shares held in the investor's name.

Source: http://www.thehindubusinessline.com/features/investment-world/article2883080.ece?ref=wl_opinion

Avoid stocks with poor fundamentals: Sivasubramanian KN, Franklin Templeton Mutual Fund

Prospective rate cuts, lower earnings downgrades and project fast-tracking by the government are likely to instill confidence in investors, though worries about deficits and capex slowdown remain, says Sivasubramanian KN, chief investment officer, Franklin Templeton Mutual Fund. Post the 2000-point market rally in January, the fund house has increased exposure to telecom and power firms and financial services institutions.

It has cut investments in technology companies, as per the fund fact sheet. In an interview to ET, Sivasubramanian says investors need to be cautious about the sharp run-up in stocks without underlying fundamentals. Edited excerpts:

Markets have gained 15% and FIIs have pumped in over 11,000 crore since January this year. What do you think is the reason for this turnaround in trend?
Improved economic news flow from key economies such as the US and China as well as policy support have improved global investor sentiment over the past one month. Emerging markets such as India have benefited from the easy global liquidity, as foreign investors seek higher yields and look for medium-to-long-term growth opportunities.

The rally also needs to be seen in the context of India's underperformance in 2011. In an improved risk environment, global investors could have found India attractive, given that most negative developments appear to be priced in. However, we need to be cautious about the sharp run up in stocks without underlying fundamentals.

Do you expect this buoyancy in the market to continue?
It is difficult to predict short-term market movements - a lot would depend on the global situation. While broad issues about twin deficits and slowdown in capex remain, there are some signs of improvement: One, RBI has indicated interest rates have peaked; two, the government seems to be fast-tracking project approvals and three, earnings downgrades momentum has slowed in recent weeks.

What are your major concerns with respect to Indian markets?
The near-term direction will depend on various factors such as inflation, policies and global factors that could impact liquidity. Any spike in risk aversion could impact capital flows into India and if commodity prices, especially energy, start firming up, it would impact India's current account position. Investors are looking for clarity on the fiscal consolidation front. They are also analysing the impact of the recently launched food security bill and SEB losses.

Is it time to move out of defensive sectors?
The focus should be on individual companies and their characteristics and growth potential rather than a top-down view that is fraught with risks. We have a bottom-up approach to investing. We choose companies based on their individual merits.

What will be the impact of Assembly elections on markets?
We don't expect elections to have any significant impact over a longer time-period. However, the results could have an indirect impact; a negative result for the ruling coalition could bring in some uncertainty. On the other hand, a strong showing can help the central government to push forth key reforms.

What do you expect from the budget?
Investors will look for an insight into the government's stand on various reforms, steps towards fiscal consolidation and policy measures to facilitate a recovery in the capex cycle.

Source: http://economictimes.indiatimes.com/opinion/interviews/avoid-stocks-with-poor-fundamentals-sivasubramanian-kn-franklin-templeton-mutual-fund/articleshow/11865606.cms?curpg=2

New disclosure rules for MFs to boost transparency

To help investors assess the quality of their investments and calibre of their fund managers, India’s capital market regulator for the first time has asked the Rs. 6.8 trillion mutual fund industry to disclose every detail of the schemes it sells.

In a recent letter, the Securities and Exchange Board of India (Sebi) has asked the country’s 44 fund houses to provide details of all their schemes, the common benchmark and their returns, returns since inception of a particular scheme, and benchmark of the schemes and their returns.

Besides, they have been asked to disclose the scheme returns vis-a-vis the common benchmark and the scheme benchmarks; their returns in the past six months with respect to the benchmarks; their returns during the fiscal year 2009, 2010 and 2011, and their compounded returns in the past three and five years.

For equity schemes, 30-share bellwether equity index Sensex and the broad-based 50-stock Nifty are common benchmarks. For short-term and long-term debt schemes, one-year treasury bills and 10-year government bonds are common benchmarks, respectively.

According to data available with Capitaline, which provides data on Indian industry and capital market, as on 31 December, there were 336 equity-oriented schemes, of which 324 were at least a year old.

Out of these 324 schemes, 142 schemes underperformed the Sensex and Nifty, with a fall of more than 24.2% in their net asset values. For the three-year period ending 31 December, 123 equity schemes underperformed the Sensex with less than 16.7% returns. Similarly, for a five-year period, 79 equity schemes underperformed the Sensex.

Sebi has also asked the asset management firms to disclose the assets under management (AUM) of the schemes, both current, past fund managers of the schemes and their tenures.

To assess the growth and the present condition of the industry, Sebi has also asked the fund houses to disclose the number of investor folios for each scheme for the first nine months of the current fiscal year and three past years —2011, 2010 and 2009.

“Sebi wants mutual funds to make more disclosures about the performance of their schemes and their fund managers. This is essential to enhance transparency and help investors take an informed decision while investing,” said a person with direct knowledge of the development, who spoke on condition of anonymity.

Legally, Sebi cannot force a fund house to perform but if the performance of the schemes and the fund managers are revealed to the investors in detail, they will be able to judge better, the person added. Mint has reviewed a copy of the Sebi note.

As on 10 February, according to Value Research India Pvt. Ltd, a New Delhi-based fund tracker, schemes that invest in gold top the returns chart with an average one-year return of 36.65%.

Equity FMCG (fast-moving consumer goods) schemes follow with 35.77% yields for the period.

All other equity-oriented schemes fetched lower average returns than even debt-oriented ones in the industry. Infrastructure and technology sector-based schemes were the worst performers with -3.06% and -1.65% average returns, respectively, during the past one year, according to Value Research.

The 30-share bellwether index of BSE, Sensex, is currently trading 1.64% above its level a year ago. The 50-stock Nifty of the National Stock Exchangeis 4.15% above its year-ago mark.

Till now, fund houses were required to only disclose the returns of the schemes vis-a-vis their benchmarks and since inception.

“Sebi wants fund houses to disclose upfront the details of the schemes and the fund managers in all investor application forms, brochures, advertisements, promotions and any such activity undertaken to reach out to prospective investors,” said the CEO of a large private sector fund house, who declined to be named.

Of late, the regulator has been informally insisting the fund managers to perform and reduce the number of schemes to simplify the selection process of funds by investors. In line with this, in 2010, Sebi allowed fund houses to merge schemes with similar fundamental attributes but without any significant corpus in the portfolio.

While the earlier move will simplify the selection process in terms of number of schemes to choose from, the latest move will let an investor junk the non-performing schemes from their portfolio.

The disclosures will also help the regulator to assess the state of the fund industry and clear only those new fund offers that are genuinely helpful for the investors and not merely a product to earn commissions from investors.

Incidentally, last June, in a mutual fund summit held in Mumbai, Sebi chief U.K. Sinha had asked the fund houses to reveal the track record of their fund managers.

Sinha has been taking a number of initiatives to help mutual fund investors take better decisions while investing as well as ensure growth for the industry. His moves are well in line with the steps taken by his predecessor C.B. Bhave.

In the 2010 summit, Bhave had criticized the industry for merely floating thousands of schemes without much meaning for the investors.

“Even if you put before me 3,000 investment products, I won’t know how to choose from those products. I’ll have no idea of which scheme is good for me. If you really want to reach to the so-called small investors in whose name you do everything, does he need 3,000 options? Is there really so much of innovation that is going on? Are these schemes really so different from each other or were there incentives operating in the market that made us generate these 3,000 options?” Bhave had asked.

Source: http://www.livemint.com/2012/02/12225310/New-disclosure-rules-for-MFs-t.html

Should investors consider international schemes as part of investment portfolios?

The year 2011 was not a good one for investors in the Indian equity markets. While the Sensex and the Nifty returned -24% for the year, the average returns by diversified equity mutual fund schemes ranged from -23% to -25% depending upon the market capitalisation exposure from large caps to mid and small caps.

With India turning out to be one of the worst performing markets in 2011 - under performing not only the emerging markets of Brazil, Russia and China, but also developed economies like the US and the UK- equity schemes with investment exposure in these foreign lands ended up generating far superior gains than their domestic peers.

Positive gains in the range of 6% - 8% accrued to schemes like Birla SL International Equity-A, Fidelity Global Real Assets and JP Morgan JF ASEAN Equity last year while others like Franklin Asian Equity, Sundaram Global Advantage and Principal Global Opportunities generated marginally negative returns ranging from -1.6% to -2.6%. Though negative, these returns were better than the double-digit negative returns posted by the domestic equity schemes.

Off the above, Birla SL International Equity and Franklin Asian Equity are direct mutual fund schemes, meaning that these invest directly in the stocks of international companies while the others are feeder funds, ie, they invest in foreign equity through other, usually their parent international mutual fund schemes that are managed overseas.

Also, while Birla SL International Equity-A is a pure international equity mutual fund, Franklin Asian Equity gives investors a taste of both domestic as well as foreign equity within Asia.

Glance at their portfolios and one will find investment in stocks of some of the popular international companies that many investors would crave to own, like, Coca Cola (US), Wal-Mart (US), Apple (US), Nestle (Switzerland), Visa (US), Samsung Electronics (South Korea) and Hyundai Motor (South Korea) among others. The annual returns from these stocks in 2011 ranged from 5% to 43%, which not many Indian companies could have flaunted last year.

This brings us to a million-dollar question -should investors consider these international schemes as a part of their investment portfolios? If yes, what is the desirable exposure one needs to have in these global funds? The golden rule of investment says -never put all eggs in one basket, the more diversified is the portfolio, the better are the chances of minimising losses. Considering this rule, some exposure to international funds does not appear to be a bad idea, especially if one were to consider the performance of global indices vis-a-vis Indian indices in both good and bad times.

For instance, despite Indian equities being amongst the better performers globally in years 2006 and 2007, the Chinese equity market returned far superior returns in comparison.

Again, though USA was the crux of the financial crisis in 2008, the Nasdaq returns of - 40% turned out to be superior to the Nifty's - 52% in that year. Even the stupendous recovery one witnessed in India in 2009 with Nifty clocking 75% gains was belittled in comparison to the gains made by the equity markets in emerging economies like Brazil (83%), Russia (126%) and China (79%).

These comparisons do make a strong case for Indian investors to consider international schemes as a part of their investment portfolios. But having said that, one cannot be oblivious to the fact that the Indian economy is not only one of the stronger domestic consumption economies in the world, but also has a forecasted GDP growth rate of about 7%, second only to China.

The biggest drag for the Indian economy last year was high interest rates and inflation that prevented investments in the capital sector and dragged down corporate financials. However, with interest rates showing signs of easing, one may expect liquidity to flow back into the economy and push growth. Also, any progress by the government on the policy front, as is being anticipated from Budget 2012, is expected to be extremely positive for the Indian equity markets.

In the event of these expectations coming true, Indian markets may eventually turn out be one of the better performers in 2012, justifying investment in Indian equities with a medium to long-term perspective.

It may thus be prudent to conclude that though investment in global schemes is desirable, the exposure to these schemes should be limited to the extent of diversification and providing a hedge to one's investment against volatility and uncertainties of the Indian equity markets.

Source: http://economictimes.indiatimes.com/features/investors-guide/should-investors-consider-international-schemes-as-part-of-investment-portfolios/articleshow/11851362.cms?curpg=2