FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Fixed Maturity Plans Only Promise but Do Not Deliver
High net worth individuals that are considered to be critical for the investment of any business in the stock market are finding it hard to place their trust in fixed maturity plans or FMPs these days. The reason behind this is quite simple. Fund managers have portrayed a picture of indicative portfolios that are quite different from the actual investments made in such a portfolio. As a result, many of these funds are not just miles apart from generating decent returns from their investors, but they are finding it increasingly difficult to even protect and secure the initial investments made by their individual unit holders. High net worth individuals who thought that they had made a prudent investment decision by investing in fixed term fixed deposits had later discovered that much to their surprise, there was a lot of maturity mismatch. Although the portfolio had boasted to be a diversified one, it had actually concentrated much of this investment in a specific class of securities. The net asset values of such schemes had not just dropped to an all time low due to the turbulent market conditions, but they were also charged an additional charge of exit loads which just added some unwanted fuel to the fire. And this was not the most disappointing part of such a scheme. The saddest part of these schemes was that initially, investors were promised that no additional charges as those mentioned above would ever be charged, especially since they were taking a separate amount towards asset management fees.
Many investors were shocked as soon as the truths unraveled over time. Fund managers did not bother to inform their investors before taking such decisions, further hurting the sentiments of their investors. They felt cheated when they were shown an indicative portfolio, none of what it had promised was delivered, further defeating the purpose of an indicative portfolio. Moreover, if the maturity period of FMPs surpasses the release date of the indicative portfolio, then a uniformity of at least 75% must be present in such a scheme. Anything less than 75% is considered to be derogatory in market standards. In their defense, mutual fund officials claim that an indicative portfolio is not a fixed statement and fund managers are merely showing investors the areas in which they would like or prefer to place their investments. Since this list is made prior to the actual investment period, before the investments have already been made, some discrepancies can be expected. As a result of this confusion that is widespread in the FMP market, investors in FMPs have witnessed losses over various periods of time. They believe that all this must be attributed to mismanagement of the fund which is quite pervasive in the case of FMPs.
Although bond prices have seen a lot improvement, the net asset value of funds has fallen low. What has saddened investors further is the exit load that is charged over and above the other fees of the fund. Houses which offer FMP in the market claim that the reason why they charge an exit load is quite justifiable especially since authorized financial bodies have claimed their performance to be quite satisfactory. Although this practice has been quite prevalent in the market, the regulatory body of the country is said to take necessary steps in this direction to stop all such practices that hamper the interests of customers in the market. Keeping the market conditions in view, it is best to not make an exit from these schemes on a premature basis as it would merely leave investors all alone to brave the bill all alone.