Basic Rules of Mutual Funds

Following are some rules to help invest better and attain your financial goals.

Know Yourself -- The first step towards achieving your goals is that you must know yourself. Try to get an idea of how much risk you can handle. Do a tolerance test for yourself. If your Rs. 10000 investment turning into Rs. 6,000 upsets you--even if it could subsequently bounce back--perhaps an aggressive equity fund is not for you.

Reality Check --. What are your goals? If you need to turn Rs 10,000 into Rs 50,000 in two years, a medium term bond fund may not be the right answer. Work on setting realistic expectations for both your goals and your funds.

Know Your Portfolio -- Look for areas that are over-represented and for those that are lacking. For example, is your portfolio overly concentrated in the large-cap equities or too much of highly rewarding but wildly volatile infotech stocks. Are you missing investments in small-cap stocks?

Know What You Are Buying -- Once you discovered yourself, spend some time for a close understanding of your funds. The stated objective of a fund as given in a prospectus is often incomplete and does not reveal much. Based on the readily available portfolio and fund manager's commentary, you can broadly understand the style and strategy followed by a fund. This will help you meaningfully diversify your portfolio. This will also help you assess potential risks. In general, large-cap value funds are less risky than small-cap growth funds.

Examine sector weightings to find out what will drive the portfolio's returns-both up and down. And know that funds with large stakes in just one or two sectors will likely be more volatile than the more evenly diversified funds. Looking at a fund's sectors historically will help you gain a good perspective. Does the manager move in and out of sectors frequently and dramatically? If so, the fund might get hurt, if the manager is ever caught on the wrong foot.

Check out Your Fund's Concentration. A portfolio with just 20 or 30 stocks or one that puts most of its assets in just a few stocks will likely be more volatile than a fund that's spread among hundreds of stocks. But there could be rewards of concentration. A concentrated portfolio will also get more bang for its buck if its stocks work out. You may want to add a concentrated fund, one that owns fewer stocks or puts most of its assets in the top 10 or 20 stocks, to your portfolio.

But largely, your core funds should probably be well a diversified and more predictable. Though a small allocation to a sector-oriented fund, a more-flexible fund, or a more-concentrated fund could boost your returns.

Assess Performance Appropriately -- Past performance is no indicator of future results. Investors should commit this statutory quote from mutual fund prospectuses, advertisements and any other literature to memory. It should be recalled more readily than the your bank account number. It should be repeated anytime you consider sending money to any fund with a 100% three-month gain.

Why? Chances are, that three-month boom will be followed by a three-month bust. To prove it, we took a look at the top 10 domestic equity funds as of September 30 for each of the past five years. What proportion of them landed in the top 10 for the ensuing three-month period? Don't laugh. It was just 10%.

What's an investor to do? Not concentrate a mutual fund portfolio on a concentrated fund. And, above all, don't focus on short-term returns. When choosing a fund, look for above-average performance, quarter after quarter, year after year.

Be A Disciplined Investor -- After you've chosen some funds, stick with them. Don't be afraid to go against the tide, as often the unpopular groups tend to outperform in subsequent years. In other words, small contrarian bets could be lucrative. And discipline is the key. Rupee-cost averaging, or investing a regular amount of money at regular intervals, tends to add value. With a systematic investment plan, you are likely to beat the fund returns.

Know How Much You Pay -- Money saved is money earned. So it's always better to pay less than it is to pay more. Expenses are very important with your larger-cap, lower-risk funds, and less critical with small-cap funds and other higher-risk categories. For example, be wary of high expenses when you are considering bond funds. And you can afford to be lenient with the expense of a small-cap or a sector equity fund.

The nuances of mutual fund investing can be endless. But the strength of the mutual fund idea lies in its simplicity. Don't get bogged by the noise and clutter. You could well be on your way reach your goals by following these basic guidelines and be a smarter investor.

Mutual Funds work?

A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investments that may make up a mutual fund.

The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value.

Mutual funds are, by definition, diversified, meaning they are made up a lot of different investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem).

Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however -- your money is in someone else's hands, after all.

Since the fund manager's compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job!

Mutual funds can be open-ended or closed-ended. But many people consider all mutual funds to be open-ended, while putting closed-ended funds in another category.

"Open-ended" means that shares are issued in the fund (or sold back to the fund) whenever anyone wants them. With closed-ended funds, only a certain number of shares can be issued for a particular fund, and they can only be sold back to the fund when the fund itself terminates. (You can sell closed-ended funds to other investors on the secondary market, though.)

Load refers to the sales charges added to a mutual fund when you purchase it. The load charge goes to the fund salesperson as a commission and payment for their research services. Load charges can be up to 8.5 percent of the selling price and can be figured in as a front-end load (meaning you pay it when you buy the mutual fund) or a back-end load (meaning you pay when you sell the mutual fund).

Many mutual funds are no-load funds. Yes, that means there is no sales fee charged and the fund is direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on the Internet today, it is certainly easier to make smart choices yourself to save money.

In addition to no-load funds, there are also funds that charge up to 3.5 percent as a sales fee. These are called low-load funds and can still be a good deal.

Mutual funds fall into three categories:

* Equity funds are made up of investments of only common stock. These can be riskier (and earn more money) than other types.
* Fixed-income funds are made up of government and corporate securities that provide a fixed return and are usually low risk.
* Balanced funds combine both stocks and bonds in the investment pool and offer a moderate to low risk. While low risk may sound good, it is also accompanied by lower rates of return-meaning you risk less, but your investment won't earn as much. You have to decide how much risk you're willing to take on before you invest your money.

Knowing About Mutual funds

What is a Mutual Fund?

A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). When you invest in a mutual fund, you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in, thus by pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification, by minimizing risk & maximizing returns.

Diversification

Diversification is nothing but spreading out your money across available or different types of investments. By choosing to diversify respective investment holdings reduces risk tremendously up to certain extent. The most basic level of diversification is to buy multiple stocks rather than just one stock. Mutual funds are set up to buy many stocks. Beyond that, you can diversify even more by purchasing different kinds of stocks, then adding bonds, then international, and so on. It could take you weeks to buy all these investments, but if you purchased a few mutual funds you could be done in a few hours because mutual funds automatically diversify in a predetermined category of investments (i.e. - growth companies, emerging or mid size companies, low-grade corporate bonds, etc).

Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. thus mutual funds has Variety of flavors, Being a collection of many stocks, an investors can go for picking a mutual fund might be easy. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories, mentioned below.
Overview of existing schemes existed in mutual fund category: BY STRUCTURE


1. Open - Ended Schemes:

An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices. The key feature of open-end schemes is liquidity.

1. Close - Ended Schemes:

A closed-end fund has a stipulated maturity period which generally ranging from 3 to 15 years. The fund is open for subscription only during a specified period. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where they are listed. In order to provide an exit route to the investors, some close-ended funds give an option of selling back the units to the Mutual Fund through periodic repurchase at NAV related prices. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor.

1. Interval Schemes:

Interval Schemes are that scheme, which combines the features of open-ended and close-ended schemes. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. Overview of existing schemes existed in mutual fund category: BY NATURE 1. Equity fund: These funds invest a maximum part of their corpus into equities holdings. The structure of the fund may vary different for different schemes and the fund manager’s outlook on different stocks. The Equity Funds are sub-classified depending upon their investment objective, as follows:

* Diversified Equity Funds
* Mid-Cap Funds
* Sector Specific Funds
* Tax Savings Funds (ELSS)

Equity investments are meant for a longer time horizon, thus Equity funds rank high on the risk-return matrix. 2. Debt funds: The objective of these Funds is to invest in debt papers. Government authorities, private companies, banks and financial institutions are some of the major issuers of debt papers. By investing in debt instruments, these funds ensure low risk and provide stable income to the investors. Debt funds are further classified as:

* Gilt Funds: Invest their corpus in securities issued by Government, popularly known as Government of India debt papers. These Funds carry zero Default risk but are associated with Interest Rate risk. These schemes are safer as they invest in papers backed by Government.



* Income Funds: Invest a major portion into various debt instruments such as bonds, corporate debentures and Government securities



* MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. It gets benefit of both equity and debt market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes.



* Short Term Plans (STPs): Meant for investment horizon for three to six months. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs). Some portion of the corpus is also invested in corporate debentures.

· Liquid Funds: Also known as Money Market Schemes, These funds provides easy liquidity and preservation of capital. These schemes invest in short-term instruments like Treasury Bills, inter-bank call money market, CPs and CDs. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. 3. Balanced funds: As the name suggest they, are a mix of both equity and debt funds. They invest in both equities and fixed income securities, which are in line with pre-defined investment objective of the scheme. These schemes aim to provide investors with the best of both the worlds. Equity part provides growth and the debt part provides stability in returns.
Further the mutual funds can be broadly classified on the basis of investment parameter viz,
Each category of funds is backed by an investment philosophy, which is pre-defined in the objectives of the fund. The investor can align his own investment needs with the funds objective and invest accordingly. By investment objective:

* Growth Schemes: Growth Schemes are also known as equity schemes. The aim of these schemes is to provide capital appreciation over medium to long term. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation.



* Income Schemes:Income Schemes are also known as debt schemes. The aim of these schemes is to provide regular and steady income to investors. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited.



* Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn. These schemes invest in both shares and fixed income securities, in the proportion indicated in their offer documents (normally 50:50).



* Money Market Schemes: Money Market Schemes aim to provide easy liquidity, preservation of capital and moderate income. These schemes generally invest in safer, short-term instruments, such as treasury bills, certificates of deposit, commercial paper and inter-bank call money.


Other schemes


* Tax Saving Schemes: Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. Under Sec.88 of the Income Tax Act, contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate.



* Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. The percentage of each stock to the total holding will be identical to the stocks index weightage. And hence, the returns from such schemes would be more or less equivalent to those of the Index.



* Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. e.g. Pharmaceuticals, Software, Fast Moving Consumer Goods (FMCG), Petroleum stocks, etc. The returns in these funds are dependent on the performance of the respective sectors/industries. While these funds may give higher returns, they are more risky compared to diversified funds. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time.


Types of returns:


There are three ways, where the total returns provided by mutual funds can be enjoyed by investors:

* Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.



* If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution.



* If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares.

Pros & cons of investing in mutual funds:

For investments in mutual fund, one must keep in mind about the Pros and cons of investments in mutual fund. Advantages of Investing Mutual Funds: 1. Professional Management - The basic advantage of funds is that, they are professional managed, by well qualified professional. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. A mutual fund is considered to be relatively less expensive way to make and monitor their investments. 2. Diversification - Purchasing units in a mutual fund instead of buying individual stocks or bonds, the investors risk is spread out and minimized up to certain extent. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. 3. Economies of Scale - Mutual fund buy and sell large amounts of securities at a time, thus help to reducing transaction costs, and help to bring down the average cost of the unit for their investors. 4. Liquidity - Just like an individual stock, mutual fund also allows investors to liquidate their holdings as and when they want. 5. Simplicity - Investments in mutual fund is considered to be easy, compare to other available instruments in the market, and the minimum investment is small. Most AMC also have automatic purchase plans whereby as little as Rs. 2000, where SIP start with just Rs.50 per month basis.

Disadvantages of Investing Mutual Funds:

1. Professional Management- Some funds doesn’t perform in neither the market, as their management is not dynamic enough to explore the available opportunity in the market, thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self, for picking up stocks.

2. Costs – The biggest source of AMC income, is generally from the entry & exit load which they charge from an investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.

3. Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return. Dilution is also the result of a successful fund getting too big. When money pours into funds that have had strong success, the manager often has trouble finding a good investment for all the new money.

4. Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale. It might have been more advantageous for the individual to defer the capital gains liability.

Select the Best Mutual fund scheme

Selecting the right mutual fund, especially in the equity segment, is a challenge.

But, deciding which option to go for (dividend payout, dividend reinvestment, growth option) is as critical. Let's work on that.

Equity funds - Growth option

Under this option, no dividend is declared and the Net Asset Value moves up and down depending on the market movement.

You end up paying tax only when you sell your units. The rate of tax depends on the period for which you held the units.

Let's say you sold your units (redeemed them) within 12 months of buying (date of investment). You will have to pay short-term capital gains. This is a flat rate of 10%.

If you redeem the units after 12 months, you will have to contend with long-term capital gains. As per the current tax laws, this is nil.

While most investors may be clear about this, they are unsure about the right time to book profits (sell your units at a profit). And, it is essential to sell to rebalance your portfolio to the original asset allocation.

Asset allocation is a method by which one decides the percent of total investments (exposure) to different asset classes such as equities (shares) and debt (fixed-return).

So, when the value of your equity funds grows over a period of time, your exposure to that asset class increases.

Remember, the key to success in equity investing is to book profits periodically, even if you are a long-term investor.

Undoubtedly, the growth option can be described as the best as it advocates long term investing. However, investors have had mixed experiences over a period of time.

There have been occasions when investors have sold their units (exit) only to see the NAV scale greater heights. Or, they may exit in panic when they see the NAV spiral downwards.

Therefore, deciding the right time to rebalance, is a challenge for those who opt for growth option.

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Equity funds - Dividend payout

Under this option, the fund declares a dividend as and when it has surplus money.

As per the current tax laws, dividend declared by equity and equity oriented funds is tax free in the hands of investors.

An important highlight of this option is that any dividend received within 12 months from the date of investment, a part of the short-term capital appreciation, is converted into tax-free income.

For example, assume that the NAV of a fund grows from Rs 10 to Rs 14 after seven months and the fund declares a dividend of Rs 3 per unit. This will convert 75% of the short-term gains into a tax-free income.

If you had to sell your units, you would have had to pay tax. But when you get a dividend, you don't.

Another major advantage of this option is that it allows you to book a profit at different levels without having to bother about the right or wrong time to do so.

Considering the tax laws and the automatic rebalancing of portfolio, this certainly can be a better option.

• The best tax saving funds

Equity funds - Dividend reinvestment

Under this option, the fund declares a dividend and reinvests it into the fund.

The point to be noted is that the entire tax-free dividend amount is reinvested on a particular day, which in a way is timing the market.

Considering that timing the market is not a strategy that works all the time, re-investment option may not prove effective at all times.

The one that scores?

To avoid the market timing, one can opt for dividend payout and reinvest the dividend amount in an equity fund through a Systematic Transfer Plan.

A STP allows you to transfer a fixed sum at pre-determined intervals, from one fund to another. So, you may have some money invested in a floating rate fund and you can opt for a STP whereby the money will move to an equity fund of the same mutual fund house.

If the amount is not sufficient to enroll for an STP, some additional contribution can be made.

• Why you must invest in ELSS funds

Debt funds

These are funds that invest in fixed-return instruments.

In the debt and debt oriented funds, it is beneficial to opt for the dividend option for an investment made for less than one year.

On the other hand, it makes sense to go for the growth option for investments that one intends to keep for more than one year.

When a debt fund declares a dividend, there are certain tax implications.

As per the current tax laws, mutual funds are required to pay:

Dividend distribution tax: 12.50%
Plus Surcharge: 10% on the tax
Plus Education cess: 2% on the total of the above two

This is for individual investors. If it is a corporate, then the dividend distribution tax increases to 22.44%, while the other two stay constant.

But, it is important to note that dividends are tax free in the hands of investors.

On the other hand, long-term capital gains are taxed at 10% for every investor, irrespective of the category he falls under.

The short-term capital gains are taxed as per the applicable slabs for individuals. In other words, the gain is added to the income and according to the tax bracket the individual falls under, he is taxed. For corporates it is 30%.

As is evident, each of these options have positive and negative implications. The key is to select the right option keeping in mind the type of fund, tax incidence, investment objectives and time horizon.

The author is CEO, Wiseinvest Advisors Pvt. Ltd, a mutual fund advisory firm.

Select the right Mutual Fund Scheme

Purchasing units of mutual fund schemes during the IPO

Mutual funds advertise in newspapers when they come up with a new scheme. On reading the advertisement, contact your broker or the mutual fund office for an application form or download the form from the fund’s website. Fill in the application form and lodge it with your broker along with a cheque for the investment amount. You can also hand over the duly filled in application to the mutual fund office. On receiving the application form, the mutual fund’s registrar will issue an account statement showing you how much you have invested and the units allotted to you (for instance, if you invest Rs 10,000, you will receive 1000 units during the IPO at Rs 10 per unit). The account statement is a record of your investment in the mutual fund scheme.

Purchasing units of close-ended mutual fund schemes after IPO

Units of close-ended mutual fund schemes are available for purchase from the mutual fund segment of the stock market. The unit will be available at the price at which it is quoted on the market. Contact your stockbroker and place a purchase order. The broker will buy the units for which you will have to pay him the purchase cost plus his brokerage. Brokerage charged will be about 0.5-2% of the purchase cost of the units.

For instance, if your purchase cost is Rs 15 per unit and brokerage is 1%, you will pay the broker Rs15.15 per unit (i.e. Rs 15 plus 1% of Rs 15). You also incur costs of stamp duty to have units transferred in your name. However, if you purchase units in dematerialized form no stamp duty is payable.

Purchasing units of open-ended mutual funds after the IPO

Units of open-ended mutual funds are also available for purchase from the mutual fund itself. On the closure of the IPO, the mutual fund’s registrar processes the application received and issues the account statement. During this time, the fund does not accept any new applications. On completing the procedure, the fund reopens the scheme for the sale and repurchase of the investors.

Ask your broker for a form of the scheme. Fill it in and return it to your broker along with the cheque for the amount of investment. On receiving the application, the fund’s registrar processes it and issues you an account statement indicating amount of units allotted and the amount of investment made.

Units of the mutual fund will now be available at the current NAV and not the face value of Rs 10.

How do you redeem your Mutual fund investment?

Should you want to exit a close-ended mutual fund scheme before closure of the scheme, you can do so by selling the units in the mutual fund segment of the stock market. Some mutual funds offer to repurchase units for short periods of time, during which, you can directly sell your units back to the mutual fund. On selling the units in the stock market, you incur a brokerage cost of 0.5-2%. This means that you get a lower amount on the sale. For instance, if you sell 1000 units at Rs 15 per unit and you pay 1% brokerage; you will receive only Rs 14.85 per unit.

You have to give a sell order to your broker, who will then sell your units in the stock exchange.

If the units are in the dematerialised form, you can instruct the Depository to transfer the units to your broker’s account. The broker will then pay you the sale proceeds minus the brokerage.

Selling close-ended mutual fund schemes on scheme closure date Mutual funds inform you about the (closure date of the scheme and the amount due to you. However, on closure date, some mutual funds choose to convert the close-ended scheme to an open-ended one, offering you two options:

Remain invested in the mutual fund in its new form. Request for redemption of the amount due to you. If you want to remain invested, you have to inform the mutual fund accordingly. If you want to exit, a redemption request forming part of the account statement has to be filed by you and sent to the fund or the registrar. Selling units of open ended mutual fund In the case of units of open-ended mutual fund schemes, simply fill in the redemption request on your account statement and lodge it with the mutual fund or your broker. You will receive your cheque within seven working days.

Understand ways of investing in Mutual funds

How do I buy the units of a fund?" someone asked me the other day. This query was followed by a mail from a reader who wanted to know if he had to buy mutual fund units from the stock market.

For all of you who are plagued with similar questions, here is the answer.

We have listed five ways in which you can buy your fund units.

• Have I invested in the right funds?

1. Get in touch with the Asset Management Company

The first step is to track the AMC -- as fund houses are known -- online.

Once you get onto their Web site, you will get their office addresses, phone numbers and a contact e-mail address. You will even be able to transact online with some of them.

Online addresses of the AMCs

ABN AMRO Mutual Fund

Benchmark Mutual Fund

Birla Sun Life Mutual Fund

BOB Mutual Fund

Canbank Mutual Fund

Chola Mutual Fund

Deutsche Mutual Fund

DSP Merrill Lynch Mutual Fund

Escorts Mutual Fund

Fidelity Mutual Fund

Franklin Templeton Mutual Fund

GIC Mutual Fund

HDFC Mutual Fund

HSBC Mutual Fund

ING Vysya Mutual Fund

J M Financial Mutual Fund

Kotak Mahindra Mutual Fund

LIC Mutual Fund

Morgan Stanley Mutual Fund

Principal Mutual Fund

Prudential ICICI Mutual Fund

Reliance Mutual Fund

Sahara Mutual Fund

SBI Mutual Fund

Standard Chartered Mutual Fund

Sundaram Mutual Fund

Tata Mutual Fund

Taurus Mutual Fund

UTI Mutual Fund

Invest online with the mutual fund

Some mutual fund Web sites allow you to invest online. However, you must check if you have an account with the banks they have partnered with.

For example, Prudential ICICI Mutual Fund allows you to buy funds online if you have a banking account with any of the following banks: Centurion Bank, HDFC Bank [Get Quote], ICICI Bank [Get Quote], IDBI Bank and UTI Bank [Get Quote].

You can buy units of SBI [Get Quote] Mutual Fund's schemes only if you have an account with the State Bank of India or HDFC Bank.

Get in touch with the fund house

By going online, you will be able to locate the fund house's address and phone number (toll free number in some cases). You can call and request them to send an agent over.

Or, if you want, go over personally. Do make an appointment; you may end up wasting time if the person you want to speak to is not available.

Some, like Prudential ICICI Mutual Fund, have a form you can fill and submit online. Do so and they will send someone over to meet you.

• An aggressive tax saving fund

2. Visit your bank

A number of banks are mutual fund agents.

Just walk into your branch and ask if they are selling any funds. See if they have a tie-up with the fund house you want to invest in.

• 6 large-cap funds to consider

3. Ask around

Ask your colleagues, neighbours, friends and relatives. Someone will know an agent. Just ask them for his contact details or ask that he get in touch with you.

• Why investing in an SIP is important

4. Visit the AMFI website

The Web site of the Association of Mutual Funds in India has a list of mutual fund agents across the country.

Under the heading Investors Zone, you will find another one called ARN Search. This refers to the AMFI Registration Number.

Click on it and you will arrive at a search page. You can locate an agent in your vicinity by just putting in your PIN code or name of your city.

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5. Check the online finance portals

Do you have an online trading account? Then you could check if they also sell mutual funds online.

If you do not have an online trading account and are considering opening one, you could look for a player that offers both.

Some like ICICI Direct sell funds online. But you must have a trading account with them. Others, like India Bulls and Motilal Oswal, do not have this facility online but if you call and leave your contact details, they will send an agent over.

Here are some of the prominent players.

5 paisa

Geojit Securities

HDFC Securities

ICICI Direct

India Bulls

InvestSmart Online

Investmentz.com

Kotak Street

Motilal Oswal

Sharekhan

Invest in Mutual Funds

What exactly is a portfolio?

In a general sense, all the investments of an investor are collectively referred to as a portfolio. And this portfolio is meant to serve a few particular goals.

Here's how to build a portfolio of mutual funds.

• Is the Super SIP a good investment?

Define your goal

This may come as a surprise. But, you need a distinct portfolio for each goal. Why? Because you will be requiring the money at different points of time.

For instance, if you are saving for your wedding two years down the road and your retirement 30 years down the road, you will invest differently for each.

If saving for your wedding, then you don't have much time. So your risk cannot be too high. Neither can you put it in an investment which will be locked for a longer duration.

So you would not be able to consider an Equity Linked Saving Scheme which has a three-year lock-in period. These are diversified equity funds with a tax benefit. You will probably have to consider a debt fund (fund that invests in fixed return investments) or a Fixed Maturity Plan or a balanced fund (fund that invests in both shares and fixed return investments).

But, with a 30-year time frame you have lots of time on your side.

You could definitely consider equity funds � funds that invest in shares of companies.

Over long periods of time, the risk of investing in equity (and hence equity funds) is minimal and the rewards you can expect are high.

At the broad level, money that is needed within the next three to five years must be in debt funds while money that is going to be needed after that can mostly be in equity funds.

• Why Magnum Contra is a great investment

Define your asset allocation

Which means how much should be split between the various types of funds.

At a higher level, you need to decide how much to invest in equity funds and debt funds.

On the next level, you need to make selections within these broad categories.

Equity

The first step that you should take is to invest in diversified equity funds.

In our rating � which takes into account risk and return � we list funds on the basis of a star rating. Five star funds are the best you can have in your portfolio.

The September 2005 list of diversified equity funds has six funds with a five-star rating. HDFC Equity has a below average risk grade and above average returns grade. In contrast, Franklin India Prima has an average risk grade and high returns grade. Thus, compared to HDFC Equity, Prima delivers higher returns but takes more risk in doing so.

This is the kind of insight that should be the key driver in deciding which funds should form the core of your portfolio. The core should be composed of funds that offer stability coupled with returns.

Don't judge funds based on the short-term performance, always look at the long-term performance.

If you still want to invest in some equity funds, then you could try sector funds and mid-cap funds. You could also look at funds like Kotak Contra and Magnum Contra which buy stocks that are not currently popular with other investors. All these can be referred to as non-core funds.

But look carefully at your current investments before deciding.

Let's say that you have invested in HDFC Equity and Franklin Bluechip. If you take both the fund manager's investments into account, 22% of total investments would be in technology stocks and 15% in auto stocks. Now, if you decide to invest in a tech fund or auto fund (both sector funds), you are taking the call that these two fund managers have not invested sufficiently in this sector and you are really keen on investing in such stocks. Go ahead only if you are certain that you want to invest heavily in these sectors.

To compare funds, you need to look at returns and risk. How to compare mutual funds and How risky is your mutual fund? will enable you to do that.

Debt

There are ultra-short term funds, known as cash funds, which are suitable for those who want to park surplus money for a very short duration, ranging for a few weeks to a few months.

Read Tired of your savings account? Try this to get a better understanding on such funds.

Then there are short-term debt funds for those who want to invest for a year or so.

Floating rate funds invest in instruments where the interest rate fluctuates depending on the overall interest levels in the economy. When one is unsure of which direction interest rates are headed, this is a good option.

There are also medium-term debt funds which have the potential to deliver higher returns than the above.

Gilt funds are those that only invest in government securities (investments with the government backing).

How many funds?

Even within mutual funds, diversification is a must. You must invest in different types of mutual funds and they should be from different Asset Management Companies (fund houses).

Looking at the actual portfolios that people send us, most investors tend to err on the side of having too many funds, rather than too few.

To make matters worse, many of these portfolios have funds of the same type.

In our opinion, two to four equity funds and one or two debt funds are quite enough for each type of fund.

Let's say you want to invest in short-term debt funds, floating rate debt funds, large-cap diversified equity funds and mid-cap funds.

What we suggest is:

Short term-debt fund: 1
Floating rate debt fund: 1
Large-cap equity funds: 3
Mid-cap funds: 3

• Mutual funds give great returns

Evolving a portfolio

You must monitor your portfolio.

Let's say a fund might have been an excellent performer years ago but has consistently being underperforming.

In such a case, you should think of selling your units or at least stopping further investments if you are doing it via a Systematic Investment Plan. This is a scheme where you put in fixed amounts every month.

Also, if you have been saving with a 10 year time frame in mind and eight years later a bull run is on, it would be wise to take a look at your investments.

After all, you invested because you needed the money in 10 years time. Now, you need it just two years down the road. If you are making a good profit, sell your units and put them in a fund that is meant for a shorter time frame.

• Must mutual funds declare dividends

Get cracking

Constructing a mutual fund portfolio is not rocket science. It just requires a great deal of careful thought.

Remember, it's your money so don't blindly play around with it.

Manage Time

Everybody has the same amount of time. Yet some people get more done in the same amount of time and some people don’t get anything done.

The truth is, that most of the people who don’t get anything done are probably lazy people who just “relax” for most of their day. Or they, are probably people who “procrastinate” a lot. These are “personal problems”. This article will NOT help you to solve these problems.

This article is written for those people, who work and work and work and work and still do not seem to get any work done. I know this sounds funny! But this is a problem that many people have. They devote their complete day to working but at the end of the day, they are not any closer to their aim. If you are one of these people, this article is for you.

If you are just “lazy”, then this article will not do any miracle for you.

The 80/20 rule of time management!

As we have already mentioned, everyone has the same amount of time. Yet some people, manage to achieve better results in a shorter period of time. Others take a much longer to achieve the same results.

Why?

The complete understanding of time management is understood if you just understand what I am about to say next!

Since you have a “finite” or “limited” amount of time, each day, use your time each day to do the “right” things. Don’t waste your time doing the “useless or wrong” things. If you just do this, you will be able to achieve results at a much faster rate!

Obviously, the next question you will ask is, what do I mean by “right” things and what do I mean by “wrong or useless” things?

One obvious answer that probably comes to your mind is that, “watching TV for 3 hours or surfing the net and reading forwarded e-mail” is an obviously “useless or wrong” activity to waste “limited” time on.

To some extent you are right. Though it is not a good idea to spend the whole day doing these things, you must relax from time to time or your ability to work will reduce. Also the quality of the work you are doing will reduce.

However, this is NOT what we really mean by “wrong or useless” work!

To understand what we mean by “wrong or useless” work, you need to understand the “80/20 rule”. If you are doing an MBA or have studied economics, you probably have already come across this rule in some form or the other.

The 80/20 rule has many different forms. However, the form that maters to us is that:
“Only 20% of all the effort you make, causes 80% of your final results!”

Please Note: The above rule is only true if you do not manage your time properly. If you do manage your time properly, then this law does not hold true for you. The law represents the "average public".

This rule tells us that we can do many many things to get the results we want, but only 20% of the things we do, actually produce 80% of our final results. The other 80% of the things we do just produces the remaining 20% of the results.

This law is almost everywhere, in business, in your personal life, in your work etc. For example:

• 80% of the world’s money is in the hands of 20% of the people
• 80% of total business sales come from 20% of your clients
• 80% of the India’s problems are caused by 20% of the total causes.

Let us try to understand this rule by taking the example of a student who wants to learn how to solve the sums in a particular chapter. Let us assume that the student has devoted 4 hours for this.

Now, the student can do many things to achieve the result he wants.

He could “learn up” all the sums in the chapter. This would probably take him more than the 4 hours he has decided to give to the task.

He might decide to “learn up” all the formulas and then practice all the sums. This might take him the complete period of the four hours.

He might decide to read and completely understand the fundamental concept behind the formulas, the derivation of the formulas and how they are applied. Then he might try to apply the formulas to a few sums until he is satisfied and that’s it! This might take around 2 hours.

This is how you must use the 80/20 rule. The above example is crude, but you do get the basic picture. When you want to achieve a particular result, there are many things you can do. But there are certain things, (the 20%) if you do them, 80% of the result you want to achieve will take care of itself!

If the above example did not clear your doubts, consider this:

Assume, that you have to convince a group 20 people to do something for you. You can achieve this result in different ways.

You could go and approach each and every person of the 20 people and convince all of them seperately. This will probably take up a huge amount of time. Another way in which you can achieve this result would be:

• Identify the leaders or the influential people in the group. Identify the people in the group who the other people follow. This will be a small number, two or three.
• Approach these people and convince them.
• Once these people are convinced, they will convince the other people.

This is another crude example. But, what needs to be understood is that, by just doing 20% of the work, you can get the result you intend. The remaining 80% of the work that you have to, is done on its own. This way, you save time and you concentrate on what really matters.

This way, you do the “right” things and the “wrong or useless” things take care of them selves. This is the key of time management.

Next time there is a particular task you want to complete, don’t just jump head on into the task. Stop. Plan. Think about the task. Locate the 20% part of the task. Most tasks have a 20%. Once you identify it, then work it. This will give you 80% of your results. This way you will end up saving on a whole lot of time.

There is much more to learn about the 80/20 theory. To really appreciate the power of the principle, we suggest you read the book "80/20 Management". You can get your self the book from ebay.in.

If you are new to ebay, do not worry, you can just sign up from here free and buy whatever you are interested in right now! It's quite easy!

Once you are signed up, search for "80/20 Management". You could then choose one of the results and buy the book!

We recommend that you buy the book from Ebay.in since it is quite safe & secure and you will get a good deal. If you are not comfortable with Credit Card payments, there are always other options like DD, money order etc. that you can go in for.

Do what you need to do!

You can do work very efficiently if you use the 80/20 rule explained in the last section. You will be able to save a whole lot of time if you identify the 20% that controls the 80%. However, to save even more time, just don’t work at all!

I know this is a little shocking. But many of the things that we do are simply “not worth doing”. What do we mean by not worth doing?

To understand that, you need to find out: What YOU want? Or :
“What result you want to achieve?”

If you are a student, you probably want to achieve a result like:
“I want 85% in my coming exams!”
Or you may have a smaller result like “I want to finish this chapter today!”

If you are a business you may want to achieve a result like:
“I want to double sales by the end of the year!”

First thing you need to do is decide: “What specific result do you want to achieve?”

Once you find this out, half the battle is won. Now, whenever you are doing a particular task, ask yourself, does this task help me to achieve “the result”? You will find that most of the tasks you do in the day, probably do not help you to achieve “the result”. Then why are you doing them?

There is nothing complicated about this. If you spend your limited time doing something that is “useless” because even if you do it, it will not help you reach “the result”, then why are you doing it? Don’t do it!

Ask your self before taking up any major time consuming activity (1 hour or above):
Will this help me reach “the result”?

Please note: You may spend some time each day “relaxing”. This is okay. You need to relax from time to time to keep the quality and speed of your work high. You may also spend some part of your day “exercising”. This is also good. These activities help you to work.

There are some activities that you do that are not directly related to “the result”. However, if you do not do them, you will not be able to work towards “the result”. For example, eating food. You might think that eating food will not help you to achieve “the result” so why should you do it? Because if you don’t do it, you will die of hunger!

Food is a very basic example, but I am sure you can differentiate between activities that must be done and must not be done.

After doing things fast by using the 80/20 rule and not doing all the things that don’t help you reach your aim, you will find there is a lot of time on your hands.

This is a short article. In this article we have not talked about "recording your time" and "making a daily schedule". These things are much easier to say than do. They are not practically possible for most people. On indiahowto.com we try to provide you with only practical "How to.." solutions that you can apply.

You may be able to form a schedule but there are a large number of “random” things that happen in every bodies day that come in the way of a schedule. This leads to certain work that was to be done in a certain period not being done because that time was used up by something that was unpredicted. Over time, work piles up due to “random” interruptions and you will find yourself with a lot of work but little time. This is the opposite of what we want from "time management".

Personal time management though scheduling is a concept of the past. It is not practical. Now, a far more flexible time management system is used. In fact, there is no “time management” anymore. There is “personal management” that concentrates more on achieving results than “managing time”.

Best Of Luck!

Create a working budget

A budget is a great way to take control of your finances and save for some goal or maybe just get out of debt.

Steps:

1. Calculate how much money you earn in a month after taxes. For this budget plan, use your net pay or take home pay. Include tips, supplementary income, side-jobs, investments etc. This is your income.
2. Figure out your expenses. The best way to do this is to save receipts for a month or even a couple weeks. Knowing how much per month you spend on groceries or gas makes the next part much easier. If you want to start writing your budget today, and don't have receipts, that's OK, it's just a bit more difficult.
3. Set your goal. Why are you going on a budget? Maybe you want to start saving for college, or maybe you want to get out of debt. Whatever your reason, define your goal clearly so you can determine if you are meeting it or not.
4. Break your budget up into some basic categories. Some categories you could use are: Housing, Food, Auto, Entertainment, Savings, Clothing, Medical, and Miscellaneous. You might want to organize your expenses into needs - such as your loan and electricity - and wants - such as clothing and entertainment.
5. List all your spending under each of these categories. Let's take Auto as an example: $300/month car payment, $100/month insurance, $250/month on gas, $50/month on maintenance, 10$/month on fees such as registration. So, your total Auto budget for the month would be $710/month. If you don't know the exact amounts you spend, try to make good estimates. The more accurate you are, the better chance your budget has of working.
6. Once you have broken down all your spending into your basic categories, add it all up. This should show your total monthly spending. Compare it to how much you make each month after taxes.
7. Obtain some kind of record-keeping method to keep track of your budget. Some people like to use computer programs like Quicken or Microsoft Money. If you prefer you could just use a good old-fashioned ledger book. You can find one at Wal-Mart for about $5.
8. Set up your ledger. Skip the first 5 or so pages for later, we'll come back to it. Divide the rest of the ledger into as many sections as you have main categories. Put each main category on the first page of each section. This will give you room for lots of entries in each category. Some categories, like food, are going to need lots of pages.
9. Decide what period of time you want your budget set up for. I found monthly to be the most useful for me, since most bills are monthly. However, I decided to make the deposits to my budget categories twice a month. In other words, if my Auto budget for the month is $710, I showed "deposits" of $355 in the Auto section on the 1st and 15th of each month.
10. Show a deposit in each category at the start of each period, then show all the expenditures from that category throughout the period. So, for Auto, you would start off with $710 for the month, then show several expenditures for gas, one expenditure for car payment, maybe one expenditure for insurance(depending on whether you pay insurance monthly or not).
11. Use that first section of the ledger book to record income and then show the budget being subtracted from it each period. For instance, I get paid every other Friday, so there are corresponding entries in the income section showing income deposits every other Friday. My budget is ~$2800/month, and gets subtracted on the 1st and 15th. So on each 1st and 15th, the income sections shows a budget subtraction of $1400.

Tips:

• The very first month you set up a budget, it's probably not going to work for you, because if you've never kept track of this stuff before, you're not going to magically know how much to put in each category. DON'T BE DISCOURAGED. The second month might be a little better, but most people don't have a good, working budget until the third or fourth month. You didn't ride a bike without training wheels the first time you tried, and you weren't Michael Schumacher the first time you got in a car, either. Practice makes perfect!
• There are occasionally pay-periods where may make some extra money, and when that happens there is a surplus! It's up to you on how to use that surplus. You could put it directly toward your goal, or you could let it sit in your bank account as an emergency fund.
• As time goes by, you will find that your original budget has some flaws. Some areas you underestimated, some areas you overestimated. Some things come up that you didn't account for at all. That's OK! Just make revisions as you get a clearer picture of your spending. Remember to keep your overall spending less than your earning so you can meet your goal.
• The first time I tried this, my spending was more than my earning, and that was without putting anything into savings! If that happens to you, do what I did: start making cuts in your spending plan. For instance, my first budget had $150/month for clothing. After making changes, I reduced my spending to $80/month for clothing. You might have to make many changes like that to be able to accomplish whatever goals you have set for your budget.
• If you keep your emergency fund in your checking (or savings!) account, it could be very difficult to avoid the temptation to spend it when you see that shiny new must-have item you've been wanting. Find a money-market account with a decent rate of return (4-5%) and check-writing privileges and you'll be ahead of the game.
• A common problem people have when making budgets is that they'll come up with an excellent plan, but then the car breaks down and the plan goes out the window. This is why you have the above-mentioned emergency fund. If you use the emergency fund money for an emergency, don't forget to budget for putting that money back next month!
• Another common problem is people see the shiny new must-have item at (insert store here) and they buy it, even though it's not on their budget. Maybe it was on sale and they couldn't pass it up! This is why it's good to have a budget category called "Blow" (or whatever you want.) No, it's not for cocaine, it's the category for impulse purchases! I highly recommend including this category.
• Don't try and begin a budget for the first month after an event in your life where money was significantly spent or saved, such as a vacation or a move, or coming into an inheritance or winning the lottery. Wait until your finances have been "in order" or at a steady pace, usually from three to six months afterwards, before starting fresh.

Buying NOTHING

In O. Henry's classic Christmas story The Gift of the Magi, Della Young sells her most prized possession, her long, beautiful hair, in order to buy her husband, Jim, a Christmas present. The present she chooses is a chain for Jim's heirloom pocket watch, the only valuable thing he owns. When she presents her gift to Jim, she discovers that he has sold his watch in order to buy a set of ornate combs for her beautiful locks. Is there a lesson in here for us? The lesson is you don't have to buy anything to be happy. Here's how to resist the urge to splurge.

Steps:

1. Examine your spending habits. Are your buying decisions motivated by your own values or by advertisements? Don't be influenced by consumerism and an obsession with spending.
2. Stay home. If you don't need to shop, don't go shopping simply because you are bored. Don't use shopping as a recreation or amusement.
3. Leave the money at home. The easiest way to not buy anything is simply not to take any cash, checks, debit cards, or credit cards with you when you go out. At most, take a small amount of cash with you for emergencies.
4. Avoid plastic. Try putting your credit card in a container with some water and freezing it. That way you have it for holidays and emergencies but not just to go buy stuff.
5. Buy used. If you really need something and haven't been able to beg, borrow, or dumpster-dive it, go to a thrift shop and get one for pennies on the dollar. Online auctions and yard sales are also good, although there is still the temptation to buy "stuff" you don't really need.
6. Pay cash. Studies show the average person spends less when paying with cash and much more when paying with credit, possibly because when you use a credit card it feels as though you are not parting with "real" money.
7. Make a budget and stick to it. Don't treat your budget like a New Year's resolution. While creating and sticking to a budget requires self-control, it's a really good way to get your finances under control and avoid accumulating a pile of crippling debts and a bunch of worthless crap in the process of destroying your self-respect.
8. Make a list and stick to it. Make purchasing decisions at home, where your needs are apparent, instead of in stores where shelves full of other products will distract and entice you. A list can also help you postpone and consider purchases and consolidate trips out.
9. Ask yourself some questions. Will I use this every day? Will I use it enough for it to be worth buying? How many hours did I have to work to pay for this? Employ the 3-month forecast. Ask yourself if you'll still be using the product regularly in 3 months. If you have lived this long without it, do you really need it? If you move frequently, contemplate whether this purchase is really worth hauling around each time you move. If you don't, ask yourself if it's worth sacrificing some of your precious living space to own it.
10. Repair, don't replace. If you shopped carefully and got good service out of something, don't assume you have to replace it when it breaks. A good repair shop might be able to restore it to "near-new" condition for less than the cost of a replacement, and you won't be adding to the landfill problem.
11. Try to get things you need or want for free. In a surprising number of cases you can get whatever you need without spending a dime.
    
    
    • Check local "free sales". Visit websites such as freecycle, Freesharing,Sharing is Givingor craigslist. These sites are so useful precisely because so many people buy things they don't need or replace perfectly good things with similar but newer things. You can decide to be smarter than that.
    • Borrow. If you need a product for just a short time, why not borrow someone else's? There's no shame in borrowing as long as you are willing to reciprocate when someone needs to borrow something of yours.
    • Try bartering. Your past extravagances have probably left you with a lot of things you no longer need, but which other people may want. Experience some of the gains from trade that economists are always talking about.
12. Oh, my! This would look nice in the bathroom.
    Avoid shopping malls, if possible. If you need to purchase something, go to a store that sells that thing. Don't automatically head for the mall, where you'll likely get lured into buying things you don't need. If you go to the mall just to hang out with your friends, consider finding new hobbies, or new friends. If you have to walk through a shopping mall to get to a restaurant or a movie theater, keep yourself engrossed in conversation (either with yourself or your companions) so that you don't focus on your surroundings. Concentrate on where you are going, but pay no attention to the stores along the way.
13. Use the buddy system. If you go out with friends, you may find that you enjoy yourselves so much that you don't even feel like buying anything. You could all make a pact to prevent purchases. It's kind of like a 12-step program to escape the consumer culture.
14. Avoid unnecessary upgrades. Yes, that new toaster has a little chime and can toast eight slices at once, but seriously, how often do you need eight slices of toast at once? Our consumer culture pressures people to replace perfectly good products with newer products for silly reasons, like fashion. Remember, an avocado-colored oven works just as well as one that's mango-colored.
15. Buy for durability. If you decide to purchase something, choose something that won't wear out, or won't wear out quickly. Also avoid purchasing items that will go out of fashion. Think through how you will use the item and how your choice will meet your needs for as long as possible. Thinking in the long term, a more durable item costing 30% more up front will still save you money if you can use it twice as long.
16. Buy for easy compatibility. If you really like an item, think carefully about how well it will work with what you have already. Maybe a clothing item is fresh and flattering, but if it doesn't coordinate well with at least two or three pieces you own, you'll either get limited use out of it, or worse, you may 'need' to buy more to use it at all.
17. Use the "Rule of 7." If something you want is over 7 dollars, wait 7 days and ask 7 trusted people whether this is a good purchase. Then buy it if you still think it is a good idea. This rule will curtail impulse buying. As you get more financially secure and have a larger disposable income, you can gradually increase the threshold upward from 7 dollars.
18. Make gifts for people. Use your own skills (or learn a new skill) to make gifts that people will remember long after they've forgotten store-bought presents. Don't forget that gifts needn't be wrapped. You can make a gift of time or skills, too. Remember the lesson of The Gift of the Magi: it really is the thought that counts. Money can't buy you happiness or self-respect or any friends worth having.
19. Tax yourself. Every time you make a purchase over $10 (or $50 or whatever limit you choose), take 10% of the price and put it into your savings or your investments. This way, you discourage yourself from buying something just because the item is "marked down" or "a bargain" and boost your financial security every time you make a significant purchase. If you use a debit card or a credit card, try using one that has a savings program, American Express offers a card with a savings account and Bank of America offers their "Keep The Change" program to automatically transfer money into your savings account.
20. Grow your own food. If you have even a small garden, it's easy to grow your own food.

Tips:

• Read books such as Why We Buy, so you understand retailer tactics that are used to get people to buy things they do not need. Get the books at the library; no need to buy them!
• If you have children, bring them with you when you shop. Ask them to remind you to think twice when you pick up an item. Have them say "Do we really need that?" or "Can we really afford that?" This tip helps you AND teaches your children the value of properly managing their spending. Use common sense. Young children, especially, could become scared if you ask them to regulate your behavior. Children can sense how stressful a topic money can be, and sometimes find it scary and confusing.
• Can't think of any place to hang out but the mall? Try visiting a friend, taking a walk on a nature trail, going to a free concert or event, or playing at the park. Your life will be richer in more ways than one if you eschew shopping malls.
• Instead of renting movies, check your local library. Many libraries offer a wide selection of movies for free. While you're there, check out their other offerings, too. Remember, libraries are nice places to hang out in and reading is free.
• If you're really weak-willed, freeze your credit cards in a coffee can full of water so you will have to thaw them out before you use them. Or if you have a trusted neighbor, put your credit cards in safekeeping with them, explaining to them you're trying to limit your spending. Chances are you won't be able to face them to ask for your cards if you don't have a compelling reason.
• "Buy Nothing Day" is November 23, 2007, in North America and November 24th elsewhere. Participate by not joining in the mad and often mindless holiday shopping rush on that day.
• Buy second hand! That way you'll save money and spare the environment by reducing waste, also more likely than not you'll support a charitable organization.

Buy a flat

For most people, buying a flat is one of the biggest buys they make in their life. It involves a huge amount of money. When you put in so much money, you want to be sure that you are making the right decisions and not doing anything wrong. That is exactly what this article will help you with.

The actual process of buying a flat is not very complicated. Even if you do not understand it, your seller will be more than happy to explain each and every thing to you. The difficult part is, knowing that you are not being "fooled" or "conned" by someone. This guide will give you all the possible tips and tricks you should keep in mind so that you can make your decision wisely. We hope you find it helpful.

Please Note: This guide is designed to help people who are interested in buying flats in brand new constructions as well as already existing buildings. Some of the points may not be applicable to you depending on the kind of flat you are buying.

When choosing the location of your flat, you must consider these questions:

Is there a “daily market” from which you can buy fruits and vegetables near-by?

Is there a doctor’s clinic or hospital nearby?

If you and your family relies on public transport, is there a buss stop, railway station etc. close-by?

If you have small children, is there a playground, park, garden etc. close-by?

What about post offices, banks etc.?

Does the area have proper drainage, sewage and water supply?

Is there a regular system for garbage disposal in your area?

What about schools, collages, offices? How far are they from the location?

What will the daily transport cost be?

What is the pollution and noise situation in the area?

How is the neighborhood? Is it a safe place to raise children?

It would be best if you choose a flat that satisfies your needs and also suits your life style. You could use these questions to guide you:

What is the age of the people who will be living in the flat? If they are old, you might want to choose a flat that is on the ground floor or first floor?

If the flat is on a high floor, is there a lift service available in the building?

Does the lift service have a generator backup?

If you choose a flat on the first or ground floor, you must consider the possibility of floods affecting the area!

How are the flats in the society arranged? Is there privacy or can everyone see into your house?

When people are talking in the flat next to yours, can you hear it in your flat? This would mean that your conversations too will not be private!

How are the windows of the flat arranged? Does enough sunlight come into the house?

Is there enough ventilation?

What are the amenities the society is providing?

Are there too many corridors in the apartment? You will be paying on basis of area. Corridors eat up room-area!

Ideally, there should be at lest one common toilet so that the visitors do not have to enter your bedroom to use your bathroom.

The kitchen, dining room and entrance should be close to each other. This ensures easy serving of food to guests etc…

Ideally, the building design should include “curtain walling”. It is required to protect against “seepage” problems!

Check the heights of railings, distance between each railing etc. from the point of view of safety of children.

The builder might tend to design the flat such that the bathroom is close to the kitchen. This is done to reduce plumbing costs. But this tends to clutter up the house and reduces the ventilation of other rooms of the house. Make sure that this is not the case.

Try to draw the furniture on the ground and see how much space is left free. Is the house too cluttered?

It would be a good idea to check up on the quality of construction before you go in for a particular project. Let the following points guide you:

You need to check up on the reputation of the “promoter”, “contractor” and “architect” of the construction. Visit other projects by them. Try to find problems and faults in their construction by talking to people.

One of the most important criteria is the cement being used in the construction. Try to check up often, though surprise visits about the type of cement being used. Ask the builder about this? Ask him to explain why he feels the particular cement being used is the best…

Check up on the thickness of the external walls. If they are 6-inches walls, it is not a very stable construction. A 9-inch wall is always better.

You must ask for a 'performance guarantee' clause or at least a 'structural liability' clause in the sale agreement. This will insure that the builder remains liable for any defect in the building for at least one to three years from the day he hands over possession to you.

Having used all the above given points, let us assume that you have finally found your dream house. Now, comes the question of paying for it. Most people will go in for a home loan…

There are many different companies that are providing home loans. There are many different offers and features. How do you decide what loan you should go in for? To help you answer that, here are a few things you might want to consider….

Best way to compare offers: Go to the different institutions providing housing loans and ask them to calculate and give you the “net” amount of money you will have to pay over 10-Yrs and the “net” amount of money you will have to pay over 20-Yrs. When we say “net” we mean that the money includes everything, the administration, processing and all other possible fees. Note all the different rates that all the different organizations give. This will give you the best idea about the different rates.

You will also have to choose between a 10-Yr or 20-Yr loan. A 20-Yr loan will mean lower EMI (equal monthly installments) but probably a higher interest rate. In the long run, you'll be paying more for your house because you will be making more interest payments.

With a 10-year loan, the EMI will be higher but the interest rate lower; thus you'll pay less for your house because it will be paid off in a shorter period of time. You will have to decide what suites your needs.

Find out about “processing fees”, “administration charges” and the “quantum of loan”. Get each institution to provide you with a written statement of all fees. Then, ask to reduce one or more of the fees. Use the lowest fees you to negotiate with other institutions. (Don’t be shy. Seriously!) You must negotiate.

If a sales person asks you to include false information on your home loan application to get quick approval, do not agree to this. Also don’t get confused into borrowing more money than you need or can afford.

A lot of Income Tax savings are possible with home loans. The Income Tax saved can be used to pay the EMI. So do not loose out on the income tax saving oppertunities.

Ideally, you should choose the bank which does not require a "guarantor" and offers home loans without "pre-payment penalty" (or a penalty for repaying loan before it is due). This helps you re-pay your loan as early as possible.

The following documents will be required if you approach an institution with a home loan request. Try to take these documents along with you. If you show them that you are a serious buyer, they are more likely to be open to negotiations:

If you are a Salaried Employee:

1. The latest salary slip showing statutory deductions
2. Form 16 (showing tax deducted at source by employer)
3. Proof of age (birth certificate/voter identity card/passport/school-leaving certificate/valid driving licence)
4. Proof of residence (phone bill/electricity bill/ration card)

If you are Self-employed:

1. Computation of income for the previous two years, certified by a Chartered Accountant
2. Profit & Loss Account and Balance Sheet for the previous two years, certified by a Chartered Accountant
3. Proof of age (birth certificate/voter identity card/passport/school-leaving certificate/valid driving licence)
4. Proof of residence (phone bill/electricity bill/ration card)

Choosing "fixed" or "floating" interest rate!

Just incase you are not sure about what these mean, let us explain them first. A "fixed" rate would be a rate that would be set right at the beginning when you apply for the loan. Suppose you apply for the loan and choose a “pure fixed” rate, then if the rate of interest is 9% at the time of application, it will remain 9% for the complete period of the loan.

This could be good if the interest rates increase during the period for which you are paying the loan. This could be bad if the interest rates reduce during the period for which you are paying the loan. But, if you want a safe option, then you should go for this.

However, there is another version of “fixed” interest rates. These are “semi fixed”. This means that the interest rates remain the same for 3 or 5 years. And at the end of every 3 or 5 years, the interest rates are changed again. If you decide to go in for “fixed” rates, be very clear about the kind of “fixed” rates you are choosing.

In the case of “floating” interest rates, the interest rates change depending on basis of some other external interest rate. For example, some banks decide the “floating” interest rate on basis of their fixed deposit interest rate. And the fixed deposit interest rate generally depends on the market.

However, in some banks, the “floating” rate may depend on some "internal interest rate" that is not market dependent. This is as good as a “fixed” interest rate. It will just give an impression of a “floating” rate. So, make sure you know what the “floating” rate is dependent on, when you go for it.

Now a days, some banks even allow you to split your loan amount and pay part of it on the “fixed” and the other part on basis of the “floating” rate. Ask about this. Also ask whether there is a way to switch from “fixed” to “floating” interest rates in the middle of the tenure. If that is possible, you should be constantly vigilant of changes and make switches appropriately for getting the best rate!

Basically, the choice of “fixed” or “floating” rate depends on your situation and how much risk you can take.

Keep these few things in mind. If you are not clear about the procedure of taking a loan, do not worry about that. Just go to a institution, and tell them you want a home loan, they will be more than happy to tell you everything you want to know!

Before you short-list a particular property, you need to make sure that the land on which the property is being built, is free of any legal problems. If you do not do this, a few years down the line, in a Govt. drive to remove illegal property, your home may be destroyed. So it is better to be safe than sorry.

The first thing you need to check, is the "permitted use of the land" in the government records. Land CANNOT be used for real estate, unless it is "buildable" land as per government records.

You should ALSO get your lawyer to find out from the land registration office whether the land has been sold or mortgaged to other parties, or whether any other fact has been left undisclosed by the owner of the land.

If the land area is more than 500 sq. m. check with the builder on whether he has obtained the "ULC Clearance" for development on the land.

Make sure that all the required property taxes to the municipality departments are properly paid and up-to-date! Ask the builder to provide you with the receipt of the latest tax payments to make sure that they are being payed.

Inquiries should also be made in various departments of the municipality to find out whether any notices or problems relating to the property have been issued and not yet satisfied by the builder. Finally, it should be checked whether the property in the name of the seller according to government and municipal records.

Any land that is clear from all these issues mentioned above would be an ideal site for building.

There is a simpler way to go about all of this investigation. You see, most municipal authorities seek "clearances" and "no objection certificates" from the relevant departments before sanctioning a building plan. So, if a promoter/builder is able to show you a sanctioned building plan, this could indicate that the land is free from legal issues. However, of course, some bribery etc.. may have been used to obtain the sanction of the building plan. So to be really sure you should investigate yourself.

But, if you do not want to take the trouble, at least ask the builder to produce the sanctioned building plan!

Finding out how much the flat will cost you...

Flats are generally priced on basis of area. But, how much area? What area? We shall discuss the way this area is calculated and how flats are priced here...

Saleable/ super built-up area: Carpet area is defined as "the net usable area measured from the inner faces of wall to wall". However, the trend nowadays is to calculate area on the basis of built-up area or "super built-up/saleable area".

Built-up area is the net area of a flat, including space covered by the wall thickness. This is generally 15% more than the carpet area of a flat. This are also includes the "common spaces area".

There are two types of "common spaces" area:

1. Common Spaces on each floor
2. Common spaces in the building

Common spaces on each floor:
The staircases, lobby, lift, etc. on the floor are to be divided "proportionately" among the flats on the particular floor. For example, a building may have four flats per floor with different built-up areas. The built-up areas of the four flats may be 1000, 2000, 3000 and 4000 sq. ft. It means that the proportionate shares of floor space among the four flats are 10%, 20%, 30% and 40%.

Now, if the area of staircase, lobby, lift, etc., is 100 sq. ft. then it should be shared among the four flats as per the proportion of floor space enjoyed by them. So, out of 100 sq. ft., 40 sq. ft. goes to the 4000 sq. ft. flat, 30 sq. ft. to the 3000 sq. ft. flat and so on. Therefore, the gross area of the four flats on a floor becomes 1010 sq. ft., 2020 sq. ft., 3030 sq. ft. and 4040 sq. ft. respectively.

If this is too complicated, just remember that if you have a bigger flat, you have to pay for more of the common space on each floor. If you have a smaller flat, you have to play for less of the common space on each floor.

Common spaces in the building:
Every apartment building must have a lobby, a staircase, a pump room, an electrical room, etc., at the ground level. There must also be one or more stair-room at the terrace level and sometimes, also a lift machine room. All these areas should be proportionately divided among all the flats.

So, "Super built up area" = built up area + common spaces on each floor + common spaces in the building all together!

Now, generally, when calculating the cost of the flat, you are charged on the basis of per square feet of super built up area.

Other costs...

You will have to pay a "stamp duty" of 6% to 12% of the total cost of the sale. Besides that, you will also have to pay around 1% as registration fees. All these will increase the total cost you pay, so they must be considered.

There will also be "maintainance costs", property taxes...and many other minor things. So, when calculating how much you can afford to spend, calculate all these things. Also when negotiating with the seller, negotiate on the basis of these things and ask the seller to give you a complete break up of all the prices involved.

After everything else is done....

After you find out how much the property costs you, after you negotiate over the price, it would be a good idea to take down all your negotiations "in writing" from the seller. If the seller has promised certain things like parking, a certain rate per square foot etc., take all that down in writing. Do not rely on the "seller's promise".

The next step is to prepare the "agreement of sale". Basically it is a agreement that covers everything you have negotiated and decided and other legal formalities...

If the seller insists on drafting the agreement, get it checked properly by your lawyer. There may be certain loop holes in the agreement because of which you may end up in trouble. You could also draft the agreement though your lawyer. Once the agreement is ready and accepted by you and the seller, you need to officially get the flat to be transfered to your name though the "registration" of the agreement though the Govt. Sub-Registar in your city. Pay the money and the flat is yours.

This process is a little more "long-drawn" than it seems by reading the above paragraph. However, it is not too complicated and you can easily ask your lawyer to help you with the process. What is more important is that you keep in mind the points discussed in the previous pages about the choice of flat, home lones etc.

Best Of Luck!