04 KALEIDOSCOPE
Ask your query
When I go to the bank they keep pestering me
to buy gold coins from them as an invest-
ment. Should I give in to their request? Is it
really a good investment?
Madhumita, Corporate Solutions
It is a very personal choice whether you
want to buy gold coins or not. The coins that
the banks sell are 24k and usually in 5 gms or
10 gms. As a tool to hedge against inflation it is
one of the best investments. Historically gold
has given compounded annual returns of over
12 per cent for the last 10-15 years, which
means that you would have earned equivalent
or more than the actual growth in prices. The
only problem with the coins from banks is that
not every jewellery shop buys them. Neither
do the banks buy them back, so liquidating
might be an issue.
(For any queries related to personal finance,
mail your queries to finergo@goergo.in with the
subject line ‘Doctor’.)
Mini Quiz
1. SEBI stands for
a. Stocks, Equity, Bonds and Investments
b. Savings and Earnings from Bank Interest
c. Securities and Exchange Board of India
d. Stocks and Equities Board of India
2. NBFC
a. National Banking and Futures
Corporation
b. New Banking Financial Company
c. Non Banking Finance Company
d. National Banking and Finance
Corporation
Send your answers to finergo@goergo.in or
SMS your answers to 92813 98889. Example, if
you choose A as the answer to question 1 and
B as the answer to question 2 type it as 1A2B
and send it. Winners get a free book on mu-
tual funds. Aswers for last week’s quiz:
1. Price – Earnings ratio
2. Certificate of Deposit
News you can use
No bills to be claimed for LTA
The Supreme Court has recently ruled that
companies are under no obligation to ask their
employees to furnish bills for claiming their
LTA.
Prior to this judgement companies were de-
manding bills from employees who were
claiming their LTA. In cases where employees
did not furnish the bills, they were taxed for
the amount on which bills were not produced.
The court ruling says “the beneficiary of ex-
emption under Section 10(5) (of the Income
Tax Act) is an individual employee. There is no
circular of Central Board of Direct Taxes
(CBDT) requiring the employer under Section
192 to collect and examine the supporting evi-
dence to the declaration to be submitted by an
employee(s).”
ERGO Monday, February 23, 2009
Beating recession
Income funds have shown positive returns even when equities
have shown negative returns
SNEHA BAJAJ
W
e have witnessed a steep fall
in the value of investments
in equity funds since Janu-
ary 2008 due to the down-
trend in the value of stocks where the
fund houses have invested. The Sen-
sex has come down from 21000
points to 9000 points during the last
12 months. As a result funds have de-
livered negative returns in the range
of (-40%) to (-71%) during this peri-
od.
Most investors, who opt for mutual
funds, make an entry primarily to
make a better return compared to in-
vestment in fixed deposits. When the
markets do not deliver, they are dis-
appointed and try to redeem the
units to prevent complete erosion of
capital.
During the same period some of
the income funds have delivered sig-
nificantly positive and higher return
of up to even 29.42 per cent. As
shown in the following table.
When the equity markets are not
smooth, diversification to debt is one
of the better options available to in-
vestors. Income funds invested in
debt securities vary with maturity
periods. With rapid fall in inflation
from 12.82 per cent in August 08 to
6.84 per cent in December 08, and
general slow down in the economy,
interest rates have come down.
Income funds primarily invest in
bonds, debentures, government se-
curities, and short-term instruments
like commercial paper and repos.
The regular income for these funds
comes from coupon payments and
trading gains accrue from interest
rate movements. Thus, when the in-
terest goes down the funds holding
securities of higher average maturity,
with the current high interest rates, When equity market is not smooth, diversification to debt is one of
can earn better returns than those the better options. THE HINDU FILE PHOTO
holding short-term paper, given the
softening of interest rates.
With the advantage of long-term Name of the Fund Return in the Return during
capital gains in debt schemes it
last 6 months last 1 year
might offer superior returns in com-
parison to pure fixed deposits if one Canara Robecco Income scheme (G) 19.53% 29.42%
is in the highest tax bracket.
A note of caution: The gain for in- ICICI Prudential Income Fund I P (G) 19.31% 16.16
come funds is highest when the in-
ICICI Prudential Income Fund –(G) 19.11% 15.64%
terest rates are on a downward trend.
Thus investors should come out of Reliance Income Fund-retail-G.P (G) 15.73% 12.71%
such investments when the interest
rates start showing signs of rising. ■ ING Short Term Income Fund –(G) 7.02% 10.98%