MAY 9, 2004
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Form And Function
Marketers of FMCG products are periodically accused of allowing their zest for 'form' overtake their concern for plain and simple 'function'. Meanwhile, right now, everybody agrees that the industry is in need of some innovative breakthroughs. But of form or function? Should this be an issue?


Tommy HIlfiger
Here's a fashion brand with an interesting identity crisis, new to India.

More Net Specials
Business Today,  April 25, 2004
 
 
INVESTMENT 2004
Should You Look At Fixed Income Schemes?
They may seem unfashionable, but the answer to that question is yes.
Safety first: For the risk averse, Post Office schemes may be just the thing
The past decade hasn't been good for fixed income schemes. First came a wave of scams involving non-banking finance companies. Then came the fall, and fall, and fall in interest rates. So, fixed-income schemes should be oh-so-five-years-ago, right? Wrong. Most financial advisors believe fixed income schemes should still account for 70 per cent of a high net worth individual's portfolio. "We generally advise our clients to invest between 20 and 25 per cent of their assets in equity and the rest in fixed income schemes," says Rohit Sarin, Partner, Client Associates, a company that manages investments of high net worth individuals. "That way, their wealth can be preserved." And so, National Savings Certificates, monthly income plans of banks, even RBI bonds remain popular.

At some level, all of us are risk averse. And fixed income schemes hold the promise of liquidity, assured returns (never mind that the magnitude cannot really be compared with, say, equity), and come with the added benefit of tax cover. Consider NSCs. They assure investors a return of 8 per cent (compounded half-yearly for six years), and tax rebates under Sections 88 and 80 of the Income-Tax Act of 1961. There's no ceiling to the amount that can be invested and the scheme provides for premature withdrawal in four years. Thus, a person who invests Rs 1,000 in NSCs can earn as much as Rs 1,586.87 in six years. What more could a risk-averse individual want?

Or, consider RBI bonds that promise a tax-free return of 6.5 per cent on five-year bonds or the Post Office Savings Scheme that does 8 per cent. "You cannot exclude such schemes from your portfolio unless the government withdraws them," says K.V.S. Manian, Head (Retail Liabilities), Kotak Mahindra Bank. These returns do look insignificant when compared to the 83 per cent returns on the Sensex an investor would have earned had he invested in the Sensex stocks (in a proportion equal to their weightages in the index) on April 1, 2003, and divested on March 31, 2004, but as Pradeep Dokania, Executive Vice President, DSP Merrill Lynch, points out, "It is extremely difficult to time the market perfectly or predict, with any amount of certainty, what is going to happen in the next two to three years." Investment advisors, however, believe investing in fixed income instruments through mutual funds is a preferred option to doing so directly. One reason: it is easy to enter and exit mutual funds; most fixed income schemes have some kind of lock-in period (three years for RBI bonds, for instance). Another: it allows investors the luxury of investing in government securities. And a third: it helps save on taxes since it is now the fund, and not the individual investor, that pays dividend tax.

Caveat: With an increase in interest rates imminent, investors should park their funds in fixed income schemes of short duration. "The idea is to enhance one's flexibility and shift to deposits offering higher returns," explains DSP Merrill Lynch's Dokania. Good point, that.

 

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