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  • BSE Sensex vs BSE All Cap? A Comparative Study

    BSE Sensex vs BSE All Cap? A Comparative Study

    The ‘BSE Sensex’ and BSE ‘All Cap’ are indices launched by BSE. Before we delve into their analysis, let’s understand what BSE is first.

    BSE, also known as the Bombay Stock Exchange, has been an efficient capital-raising platform for the past 143 years. It was established in the year 1875 as ‘The Native Share & Stock Brokers Association’.

    In 2017, BSE became the first listed stock exchange in India. BSE aims at providing a transparent market for trading in equity, currencies, debt instruments, derivatives, and mutual funds.

    • BSE STAR MF is India’s largest online mutual fund platform, which processes over 27 lakh transactions per month.
    • BSE Bond, the transparent and efficient electronic book mechanism process for private placement of debt securities, is the market leader.

    BSE’s well-known equity index, ‘The S&P BSE SENSEX’, is India’s most widely used and tracked benchmark index.

    Did you know?

    BSE is Asia’s first and the fastest Stock Exchange in the world with a speed of 6 microseconds.

    BSE Sensex vs BSE All Cap A Comparative Study

    BSE SENSEX

    The ‘S&P BSE SENSEX’ also known as the “SENSEX” is a benchmark index of the Bombay Stock Exchange. It tracks the performance of the 30 largest and most liquid companies listed on the stock exchange.

    You must be wondering what a benchmark is. Well, a benchmark is a widely used standard to compare the returns generated by securities. Index as a benchmark depicts the overall health of the stock market, representing a substantial portion of the Indian market capitalisation.

    Consider ‘SENSEX’ as a basket containing the top 30 stocks in terms of size and trading activity. The price fluctuations showcase the combined performance of these companies and give you a general sense of how the Indian stock market is performing.

    Its value is calculated based on the free float-adjusted market capitalisation, i.e., the weightage of each company depends on its market cap but is adjusted for the portion of shares available for trading.

    BSE All Cap

    The ‘BSE All Cap’ is a broader Index launched in 2015 that comprises the S&P BSE Large Cap, the S&P BSE Mid Cap, and the S&P BSE Small Cap. It measures the performance of 1,170 companies that are listed on the stock exchange of different market capitalisation.

    Did You Know?

    Market Capitalisation = Current Market Price of Shares * Total Number of Outstanding Shares

    For example, a company with 1 lakh outstanding shares, each valued at INR 100, would have a market cap of (1 lakh * INR 100) INR 1 crore.

    Read Also: How Many Companies Are Listed on NSE & BSE?

    Sensex vs All Cap

    The “Sensex” tracks the performance of the 30 largest companies and is a basket of India’s blue-chip stocks, whereas “All Cap” tracks the performance of 1,170 companies across all market capitalisation and includes large-cap, mid-cap, and small-cap.

    “Sensex” is considered less volatile since its major focus is on large and established companies whose performance tends to be more stable, while “All Cap” can be more volatile because of its broader market exposure and inclusion of small and growth-oriented companies with fluctuations in their performance.

    Let’s have a look at the historical returns given by them:

    Historical Returns

     Time Frame Sensex (%)All Cap  (%)
     1 Year 17.43 28.96
     3 Year 13.51 18.99
    5 Year14.4417.05
    10 Year12.8415.04*
    *Index launched on 15 April 2015

    Read Also: BSE Sensex vs BSE All Cap? A Comparative Study

    Investment Strategies

    Investment Strategies

    Choosing between Sensex and All Cap depends completely on your investment goals and risk tolerance. However, below mentioned points will give you a brief overview of strategies:

    BSE SENSEX

    1. Index Investing

    Invest in Sensex-based Exchange Traded Funds (ETFs) or Index funds to passively track the performance and growth of the top 30 companies. This investment strategy is low-cost and can be beneficial for investors who wish to start their financial journey.

    1. Value Investing

    Choose undervalued Sensex stocks with strong fundamentals when compared to industry benchmarks and decent prospects. This will help you find some hidden gems.

    1. Dividend stocks Investing

    Go for stocks with a history of consistent dividend pay-outs so that you can generate not only good returns but also regular income.

    BSE All Cap

    1. Growth investing

    Target those stocks of ‘All Cap’ that hold high growth potential. You will often find these stocks in mid-cap and small-cap segments. Do proper research to analyse their prospects and financial health.

    1. Thematic Investing

    Invest in stocks based on specific themes such as technology, healthcare, energy or infrastructure, which can give you returns in the long term.

    Sectoral Analysis

    Understanding the sectoral composition of ‘BSE Sensex’ and ‘All Cap’ can help you measure their exposure to different industries.

    • BSE Sensex is dominated by financials with a weightage of around 26% due to the presence of major banks and financial institutions such as HDFC Bank, ICICI Bank, etc. IT and consumer goods such as TCS, HUL, and ITC also hold significant weightage of around 13% to 15%. However, energy, healthcare, etc. represents the smaller portions of the index.
    • BSE All cap is more diversified, but financials still hold the top spot with weightage around 18%. However, the weightage is lower than that of Sensex. There is also a stronger presence of mid-cap and small-cap companies. Also, emerging sectors like healthcare, materials, and utilities have greater exposure and high weightage than BSE Sensex.

    Refer to the links below for a complete list of the Constituents of both indices:

    For BSE SENSEX

    https://m.bseindia.com/Sensex.aspx?Scripflag=16

    For BSE All Cap

    https://m.bseindia.com/Sensex.aspx?Scripflag=87

    Risk & Return

    Risk and Return

    ‘BSE Sensex’ is generally considered less risky due to its focus on large companies with relatively stable performance and has historically offered lower average returns compared to All Cap due to its focus on mature companies with slower growth.

    ‘All Cap’ is more volatile because of its broader exposure and also carries a higher risk. Historically, ‘All Cap’ has offered higher returns because mid and small-cap companies carry growth potential. However, remember that historical returns provide no guarantee for future returns.

    Combining stocks from various indices or sectors can help you curate a balanced portfolio with stability and returns.

    Read Also: A Comparative Study on NSE v/s BSE: Differences, Similarities, and Popularity

    Conclusion

    In summation, ‘Sensex’ and ‘All Cap’ offer valuable insights and exposure to the Indian stock market. The former represents the top 30 companies in India and, the latter represents the 1,170 companies. Keep in mind that past performance is not indicative of future results. Focus on research and carefully assess your risk appetite before making any investment decisions.

    Frequently Answered Questions (FAQs)

    1. What is the difference between BSE Sensex and All Cap?

      ‘Sensex’ tracks the 30 largest blue-chip companies, and ‘All Cap’ tracks 1,170 companies across all market sizes.

    2. Which index is right for me?

      Choosing between the two completely depends on your investment objectives and risk appetite.

    3. Which index is more impacted by economic events?

      ‘All Cap’ because of its broader exposure, it can be more volatile during short-term economic fluctuations and specific sector-related events.

    4. What are some emerging sectors within the ‘All Cap’ Index?

      A few  emerging sectors that are currently drawing investors’ attention are renewable energy, electric vehicles, healthcare, artificial intelligence, etc.

    5. Can I invest directly in Sensex or All Cap?

      No! Sensex and All Cap are not actual investment vehicles. You can invest in them through Index Funds, ETFs, etc.

  • HDFC vs SBI? Comparative Analysis Of Banking Stocks

    HDFC vs SBI? Comparative Analysis Of Banking Stocks

    The Banking Sector holds a significant importance in our stock market and economy as a whole. In this blog, we will be doing a comparative analysis of two giants, i.e., HDFC Bank and SBI Bank.

    HDFC vs SBI Comparative Analysis Of Banking Stocks

    HDFC Bank

    HDFC Bank (Housing Development Finance Corporation ) is a leading private sector bank and was incorporated in August 1994 by HT Parekh. It started its operations as a scheduled commercial bank in January 1995.

    The bank provides a wide range of financial products and services, such as retail banking, wholesale banking etc. and offers services like loans, credit cards, savings accounts, current accounts, investment products, etc.

    As of December 2023, the Bank held 8,086 branches and 20,668 ATMs across 3,836 cities with its headquarters in Mumbai. HDFC Bank has branches in four countries and three representative offices in Dubai, London & Singapore that offer home loan products to NRI citizens and persons of Indian origin. HDFC Bank is listed on the BSE and NSE with the symbol HDFCBANK.

    The Bank’s philosophy is based on five core values: Operational Excellence, Customer Focus, Product Leadership, People, and Sustainability.

    Read Also: HDFC Bank vs Axis Bank

    State Bank of India

    SBI is the largest public sector bank in India and is a titan in the Indian banking landscape with a 1/4th share in the market. SBI is headquartered in Mumbai and holds a rich heritage of over 200 years.

    The roots of SBI trace back to 1806 with the establishment of the Bank of Calcutta, the first joint stock bank in British India. Three separate presidency banks – Bank of Bengal, Bank of Bombay, and Bank of Madras emerged across British India. In the year 1921, the three presidential banks merged to form the Imperial Bank of India.

    In the year 1955, the government of India nationalised the Imperial Bank of India and renamed it as State Bank of India. SBI later acquired various state-associated banks and commercial banks.

    SBI has played an important role in bringing banking services to rural areas. Currently, SBI holds a strong distribution network of 22,405 branches and 65,627 ATMs.

    Read Also: SBI vs ICICI Bank

    Comparative Analysis – HDFC vs. SBI

    Dive into the ultimate SBI and HDFC comparison to explore their market strengths, financial ratios, and growth strategies, helping you make an informed choice between India’s top banking giants.

    HDFC vs SBI

    Choosing between HDFC Bank and SBI Bank is a tough task since both are the leading Indian banks, and each has its strengths. The points mentioned below will give you an overview of them (As of 29 Jan 2024):

    Market Capitalisation

    HDFC Bank – INR 11,04,388 crore

    SBI – INR 5,55,823 crore

    According to the data by NSE, the weightage of HDFC bank is comparatively more than SBI Bank in indices such as NIFTY and NIFTY Bank.

    Share Price

    HDFC Bank – INR 1455

    SBI – INR 623

    Both banks have their separate growth strategies, but HDFC Bank’s focus on digital adoption might give them an edge in the long run.

    Risk Assessment

    Analysing key financial ratios can provide valuable insights into the relative risk profiles of HDFC and SBI Bank. Let’s have a glimpse at how the ratios of both banks look like:

    RatioHDFC SBI
    Net Interest Margin (NIM)3.65%2.38%
    Debt-to-Equity Ratio16.79%13.01%
    Non-Performing Assets (NPA)0.76%2.78%
    Return on Equity (ROE)15.17%5.03%
    Returns on Capital Employed (ROCE)3.10%1.74%
    PE Ratio19.48x8.40x
    As of September 2023

    For your reference, the ratios given in the table are explained below:

    • Net Interest Margin (NIM) – NIM is an important metric for banks since it drives profitability. A higher NIM depicts that a bank can generate more revenue from lending than paying out interest on borrowings. We can say that a high NIM is a sign of a profitable bank.
    • Debt-to-Equity Ratio – D/E ratio measures how much debt a company is using to finance its assets. A high D/E ratio shows that the company’s major funding comes from debt.
    • Non-Performing Asset (NPA) – NPA is defined as loans and advances on which interest or principal payment is overdue. Low NPAs show effective credit risk management.
    • Return on Equity (ROE) – ROE measures the profitability of the company generated from the shareholder’s equity.
    • Returns on Capital Employed (ROCE) – ROCE measures the profitability of the company from total capital (equity and debt) employed by the company.
    • PE Ratio – The PE ratio measures the price paid by the investor relative to per share of earnings.

    From the above ratios, we can interpret that:

    • HDFC Bank shows an overall lower risk profile when compared to SBI. On the other hand, SBI benefits from lower leverage and is trading at a cheaper price than HDFC Bank.
    • SBI vs HDFC profit comparison reveals that both banks have shown robust growth, but their strategies and performance metrics differ significantly.
    • Further, HDFC Bank has lower NPAs, which showcases better asset quality and lower credit risk compared to SBI.
    • SBI displays a lower reliance on debt. However, HDFC Bank has delivered significantly higher returns on equity that reflect investor’s interest and value creation.

    Financial Statement Analysis

    FSA

    Below mentioned points below will help you with an in-depth analysis of the financial statements of both banks:

    1. Net Profit – HDFC Bank holds an edge with a higher net profit of INR 17,718 crore, whereas SBI’s net profit stood at 16,383 crore.
    2. Revenue – Both the stocks have shown robust growth with HDFC Bank’s revenue standing at INR 115,015 crores, whereas SBI’s revenue stood at INR 144,256 crores.
    3. Total Assets – SBI possesses total assets of INR 5,954,418 crore whereas HDFC Bank INR 2,530,432 crore.
    4. Total Liabilities – SBI exhibits a slightly higher level of borrowings, i.e., INR 5,954,418 crores, compared to HDFC Bank 2,530,432. This could be due to SBI’s broader operations.
    5. Investments – SBI holds a larger proportion of investments with INR 1,913,107 crore as compared to HDFC Bank’s investment of INR 511,581 crores.
    6. Loans and Advances – Both the banks allocate a significant portion of their total assets to loans, with HDFC Bank having a bit less concentration at INR 1,661,949 crores as compared to SBI Bank, which stood at INR 3,267,902 crores.

    *All the figures mentioned above are as of the September 2023 quarter.

    Conclusion

    Predicting the long-term outlook for any company is inherently a tough task and is uncertain because the long-term perspective is subject to change based on unforeseen factors. However, both banks will benefit from the projected growth of the economy, and since SBI is a public sector bank, it is likely that it may benefit from government initiatives focused on financial inclusion and infrastructure development. Not only this, but also both banks need to manage credit risk and NPAs effectively to ensure sustainable growth.

    Last but not least, choosing between the two depends on your risk appetite and investment horizon. Do not forget to diversify your portfolio and consider professional advice to mitigate risks and maximise your returns on investments.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1ICICI Vs HDFC Bank
    2Axis Bank vs ICICI Bank
    3PNB vs SBI
    4Bank of Baroda vs SBI
    5PNB vs Bank of Baroda

    Frequently Asked Questions (FAQs)

    1. When was HDFC Bank founded?

      HDFC Bank was founded in August 1994.

    2. When was SBI founded?

      SBI was founded in the year 1921.

    3. Who was the founder of HDFC?

      HT Parekh

    4. Which bank has lower NPAs?

      HDFC Bank.

    5. What was SBI called earlier?

      Imperial Bank of India

  • A Guide To Investing In Gold In India

    A Guide To Investing In Gold In India

    You must have seen ladies in your house wearing gold. Well, have you ever thought that gold can be a great source of diversification in your portfolio?

    Investing in gold is not just about chasing returns; it is about understanding its exceptional role in a diversified portfolio. In our today’s blog, we will help you understand the gold as an investment option in India.

    Gold in India holds a long-standing culture and financial significance, which makes it a popular investment choice for people.

    investing-in-gold

    Why Gold Matters?

    • Gold acts as a hedge against inflation and acts as a store of value since gold prices tend to rise when inflation increases, protecting your wealth.
    • Gold is often considered a haven asset for investment during economic or political uncertainties.
    • Gold can help you diversify your portfolio and reduce the overall risk because the price of gold is not positively correlated with the stock market, which means, it does not always move in the same direction as the price of securities in the stock market.
    • Gold is a liquid asset and can be bought and sold as and when required. You can convert your gold easily into cash if you need to.

    Did you know?

    Gold received from a relative as a gift during marriage is tax-free. However, gold received as a gift or inheritance from any other person over INR 50,000 is taxable.

    Factors Affecting Gold Prices

    Factors affecting gold prices

    There are certain factors globally and locally that affect the gold prices:

    Mine production

    The amount of gold mined each year has a significant impact on its price. If there is a decline in mine production, gold will become scarce, and its price will rise and vice versa.

    Gold Reserves

    Central Banks around the world hold large reserves of gold. When they buy or sell gold, it can affect gold prices. Say, if a central bank sells some of its gold reserves, it could flood the market and push the gold prices down.

    Investment Demand

    When there is a lot of uncertainty in the market, such as during a recession, the demand for gold can increase and hence the prices.

    Exchange Rates

    Gold is priced in US dollars. When the dollar is strong, it makes gold more expensive for investors who hold other currencies, which leads to a decrease in demand for Gold and a fall in its price. Conversely, when the US dollar is weak, it makes gold cheaper for investors.

    Read Also: Types of Investment in the Stock Market

    How to Invest in Gold in India

    There are multiple ways to invest in the gold. Some of the widely used options are mentioned below:

    Physical Gold

    • Gold Bullion – Investors can buy physical gold in the form of bars / coins. Bullion is valued based on its weight and purity.
    • Gold Jewellery – Jewellery is generally worn for adornment; it is often considered as a source of investment. However, the returns may be influenced by the craftsmanship and design of the ornament because of making charges and its related costs.

    Digital Gold

    Investment through Online Platforms – various online platforms help investors with buying and selling digital representations of gold without physical possession. These digital gold options offer a convenient way to invest in gold without the need for physical storage.

    Sovereign Gold Bonds (SGBs)

    SGBs are government-backed securities denominated in grams of gold. It is an alternative to holding physical gold. SGBs guarantee capital preservation and offer tax benefits. The minimum investment in the Bond shall be one gram with a maximum limit of subscription of 4 kg for individuals and 20 kg for trusts.

    Apart from capital gains arising from an increase in the value of the gold, SGBs also provide a 2.5% interest p.a. on the invested amount.

    Gold Mutual Funds

    • Gold ETFs – Gold ETF is an exchange-traded fund to track the domestic physical gold price. Gold ETFs are listed on the NSE and BSE and can be easily traded like a stock. Buying Gold ETF implies that you are holding gold in electronic form.
    • Gold Fund of Funds (FOFs) – Similar to gold ETFs, gold FOFs invest in a basket of other gold funds and offer further diversification but add another layer of fees.

    Taxation of Gold in India

    Taxation of Gold

    Sovereign Gold Bonds

    No capital gains tax on SGBs if you redeem at maturity, i.e., after 8 years, and if in case you wish to redeem early, you have to pay:

    • LTCG – If you redeem the investment after 3 years, then capital gains are taxed at a rate of 20% along with indexation benefit. Indexation means your gains are adjusted for inflation.
    • STCG  – If you redeem your investment within 3 years, then capital gains are taxed as per your income tax slab.

    Further, interest received on SGBs is taxed as per the investor’s tax slab.

    Gold ETFs

    Taxation of Gold ETFs is similar to that of debt taxation in India. Investors are eligible to pay both STCG and LTCG. Long-term capital gains tax is levied at 20% after indexation benefits on gold ETFs held for more than 3 years.

    For investment held up to 3 years will be considered a short-term capital gain (STCG) and will be levied according to the applicable tax slab of the investor. No security transaction tax (STT) is charged on Gold ETFs.

    Want to read more about the taxation of Mutual Funds in India? Check our blog: Decoding Mutual Funds Taxation In India.

    Physical Gold

    Investors possessing physical gold in the form of jewellery, coins, etc., are liable to pay 3% GST on the total buy value. If held for less than 3 years, then capital gains are taxed as short-term capital gains, which is as per your tax slab, and if investment held for more than 3 years, then long- term capital gains will apply at 20% and additional 4% cess, means effectively LTCG is 20.8%.

    Risks of Investing in Gold

    1. Gold prices can fluctuate significantly, and short-term movements can be unpredictable.
    2. Rising interest rates may lead to a decline in the price of the gold.
    3. Physical Gold has low liquidity and high transaction costs compared to Gold ETFs, which makes it harder to sell.
    4. Physical gold also requires secure storage as there are chances of risks of theft or damage.
    5. Global financial markets and geopolitical events influence gold, and any kind of turbulence in gold-producing countries can impact its price.

    Read Also: What is a good rule for investing in stocks?

    Conclusion

    Gold’s charm in India is unquestionable, woven into cultural threads and paired with financial strategies. Unlike stocks and bonds, gold is a tangible asset. Adding gold to your portfolio can help you diversify your portfolio, reduce risk, and balance your financial landscape.

    To sum it up, investing in gold is not a one-size-fits-all approach. It depends on your risk appetite. Before taking a plunge into your investment in a gold basket, seek professional suggestions. Keep in mind that gold may glitter, but true financial security sparkles through balanced investment strategies.

    Frequently Asked Questions (FAQs)

    1. How much should I invest in Gold?

      The investment amount completely depends on individual circumstances and financial objectives. As per the experts, a 10-20% allocation to gold is ideal.

    2. What are the minimum and maximum limits for investing in SGBs?

      The SGBs in India are issued in the denomination of one gram of gold. The minimum investment is one gram and the maximum is 4 Kg for individuals.

    3. Which option is best to buy gold in India?

      It depends on your preference whether you want to buy physically or digitally, however, SGBs are considered an ideal option if you don’t need physical gold and are buying for a long tenure.

    4. Can I invest in Gold through my regular savings account?

      Yes, some banks offer gold-saving schemes where you can collect gold units based on your deposits. Further, many banks provide the facility for buying SGBs.

    5. Is TDS applicable to SGBs?

      No, TDS does not apply to SBGs.

    Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

  • ELSS Funds: 3 Years Lock-In Worth It?

    ELSS Funds: 3 Years Lock-In Worth It?

    Have you ever planted a seed and nurtured it for three years? ELSS funds are similar to those seeds. In today’s blog, we will uncover how investing in ELSS funds can help you reap the seeds of tax-optimised returns.

    ELSS stands for Equity Linked Saving Scheme. ELSS is an equity mutual fund investment that invests at least 80% of its assets in equity and equity-related instruments. Investors choosing ELSS funds as an investment option can claim deductions under Section 80C of the Income Tax Act of up to INR 1.5 lakh. The amount that you invest in ELSS is deducted from your taxable income and helps you pay a lesser amount of income tax. Investments in ELSS attract a 3-year lock-in period.

    ELSS

    Some of the important features of ELSS funds are as follows.

    1. ELSS funds primarily invest in equity-related instruments of companies with significant growth potential. This means they can generate higher returns as compared to other tax-saving options like the Public Provident Fund (PPF) or National Savings Certificate (NSC).
    2. ELSS options can be a go-to option for investors who want to save tax and seek high returns.
    3. Gains from ELSS investments after the lock-in period are taxed as long-term capital gains at a rate of 10%.
    4. You cannot redeem your investment amount before three years from the date of investment. 
    5. Investments in ELSS funds can be done through both lump-sum and SIP.

    Read Also: What is an Open-Ended Mutual Fund & How to Invest in it?

    ELSS vs Other Tax-Saving Options

    PPF

    Apart from ELSS mutual funds, there are a variety of tax-saving options available to the investors like PPF, NPS, ULIPs, etc. 

    Public Provident Fund 

    PPF is a debt-oriented, government-backed saving scheme offering guaranteed returns. It is exempted from taxation, i.e., interest earned and the amount received on maturity are tax-free.

    However, it comes with a lock-in period of 15 years. Only partial withdrawals are allowed after specific years and offer returns of around 7-8%.

    PPF is suitable for risk-averse investors seeking stable returns and is ideal for long-term savings goals.

    National Pension Scheme

    NPS was introduced by the central government to help individuals have recurring income in the form of a pension after the retirement. These funds are market-linked and invest in equities, bonds and other assets, leading to higher and volatile returns.

    NPS invests in asset classes such as equity and related instruments, corporate and debt-related instruments, government bonds, and alternative investment funds. NPS is open to all Indian citizens aged between 18 to 65 years. Investors can claim tax deductions of up to INR 2 lakh. Maturity corpus is partially taxable, while annuity income is fully taxable.

    It attracts a lock-in period up till the age of retirement. Only 25% of the invested amount can be withdrawn after three years from the date of investment in case of an emergency.

    NPS is suitable for investors who are looking for retirement savings and are comfortable in taking risks.

    ULIP

    ULIP, or Unit-Linked Insurance Plan, is a financial product that offers both investment and insurance benefits. It provides life cover and an investment component wherein premiums are invested in numerous funds like equity, debt, or hybrid. The policyholder can choose the fund based on their risk appetite. 

    Moreover, ULIPs provide flexibility to switch between funds and allocate premiums accordingly. Returns depend on the market performance, which influences the policy’s value. Consequently, it provides the benefit of both, life insurance as well as the wealth creation. In ULIP, you can get a tax deduction of up to INR 1.5 lakh under Section 80C of the Income Tax Act.

    The table below shows the difference between ELSS and other tax-saving options:

    ParticularsELSSPPFNPSULIP
    StructureEquity-orientedDebt-orientedMarket-linkedUnit-linked insurance Plan
    Tax Deduction Up to INR 1.5 lakhsUp to INR 1.5 lakhs Up to INR 2 lakhs Up to INR 1.5 lakhs
    Lock-in period3 years15 yearsUp to retirement.5 years
    Risk profileRisk is high because of equity market fluctuationsLow risk and returns are guaranteedDepends on fund structureModerate Risk

    Further, there are multiple other tax savings instruments available such as the National Savings Certificate (NSC), Tax saving Fixed Deposit, etc. 

    Should I invest in ELSS for 3 years?

    Investing in ELSS is entirely depends on the individual preference and financial situation. However, there are some of the benefits of investing in the ELSS funds that you must know:

    1. You can claim tax deductions of up to 1.5 lakh.
    2. ELSS funds carry the potential for higher returns when compared to other tax-saving investment options.
    3. If the investments in ELSS are done through SIP, more units can be purchased when the market falls, lowering the average cost per unit.
    4. Unlike PPF and NPS, ELSS has a short lock-in period of only 3 years.

    Read Also: Long-Term Capital Gain (LTCG) Tax on Mutual Funds

    Conclusion

    Whether the three-year lock-in period of ELSS funds is worth it or not, depends on your financial goals. There is no simple yes/no answer to this question. If you can handle market fluctuations, know how to stay calm during market volatility, and are looking for some good tax saving options, then ELSS funds will be a great option for you to choose. 

    However, ELSS funds might not be suitable if you have an investment horizon of less than three years. Make sure that you fully understand all the implications before investing in ELSS funds, and remember to do thorough research on ELSS funds. With the right approach, even those 3 years might fly by as your investment grows towards a brighter financial future!

    Frequently Answered Questions (FAQs)

    1. What’s the catch with a three-year lock-in period in ELSS?

      You can consider ELSS funds as a short to mid-term commitment since you cannot withdraw them for 3 years, but the potential for higher returns makes ELSS funds attractive.

    2. ELSS funds invest in equity; will there be a volatility in returns? 

      Buckle up! You might see some bumps along the way. Stock markets can be volatile, but don’t worry, ELSS funds come with a lock-in period of three years, and staying invested for the longer term can make your journey smooth.

    3. What will happen to my investment amount once the 3-year lock-in period is over?

      After 3 years of lock-in, you have the freedom to redeem the investment, or you can stay invested. The choice is all yours! However, if you stay invested the fund will continue to generate returns.

    4. Three years of lock-in seems like a long time; why should I choose ELSS funds?

      ELSS has the shortest lock-in as compared to other tax-saving investment options. NPS lock-in is till retirement, PPF has a lock-in of 15 years, Tax saving FD and NSC have 5-year lock-in period. 

    5. Is premature withdrawal possible in ELSS funds?

      No, while other tax savings investments have the option of premature withdrawal with a certain penalty, however, in ELSS, there is no option available for the investors to withdraw before 3 years. 

  • Top Alcohol Stocks In India

    Top Alcohol Stocks In India

    Partying with friends without alcohol is like dancing without music, isn’t it! Jokes apart, have you ever thought of investing in alcohol stocks. Yes, you heard it right! Raise your glass to your success of investment and have a look on some of the top liquor stocks in India.

    India’s alcohol market is a complex and dynamic landscape that offers distinct flavours and fulfils diverse consumer preferences.

    India’s alcohol industry is expected to reach $64 billion over the next five years according to a report by ISWAI (International Spirits and Wines Association of India). Let us delve deeper and analyse India’s alcohol industry.

    Alcohol Market Overview

    India boasts the third-largest liquor market by volume, generating over $35 billion annually and is projected to grow at a CAGR (compounded annual growth rate) of 7% for the next decade. Factors like urbanisation, rising disposable income and changing social lives will drive the growth. Further, we produce over 48% of all whisky in the world.

    Did you know?

    In Dec 2023, Indian whiskey “RAMPUR” wins the best world whisky award in the prestigious John Barleycorn Awards!

    Top Alcohol Stocks in India

    Read Also: 7 Top Aluminium Stocks in India to Add to Your Portfolio

    Market Segment

    Indian-Made-Foreign-liquor (IMFL)

    IMFL is the official term that is used in India and refers to all types of liquor in the country except indigenous alcoholic beverages. It includes a wide range of beverages such as whiskey, rum, vodka gin, etc. IMFL signifies a historical difference from traditional Indian drinks and offers from affordable value brands to premium labels.

    Indian-made-Indian Liquor (IMIL)

    It is also a category of alcoholic beverages produced in India. The term encloses several locally produced alcoholic drinks using age-old recipes and ingredients such as grains, flowers, and fruits. IMIL is widely known as “Desi Daru”. The alcohol content in such drinks is around 30%. This category is often cheaper than commercially produced IMFL and can be easily accessed by the wider population.

    Beer

    This segment comprises all the beers produced in the economy and has witnessed rapid growth in recent years specifically among urban millennials and professionals.

    Wine

    The wine category in India is experiencing steady and consistent growth. The segment is dominated by domestic wines with 90% domestically produced and consumed. Indian wines are considered more affordable than imported wines and are expected to grow at a CAGR of 10.7% by the year 2027.

    Top Stocks Companies of Alcohol in India

    In India, we have more than 15 listed companies on NSE and BSE. If you’re looking for a comprehensive liquor stock list, let’s discuss some of the top companies:

    Read Also: Top Real Estate Stocks In India

    1. United Spirits

    United Spirits Limited, a subsidiary of Diageo, is the largest alcohol company in India by market capitalisation. Further, it is the second largest alcohol company in the world by volume. It produces a wide range of products which houses an outstanding collection of premium brands, including but not limited to: Royal Challenge, McDowells, Black Dog, Johnnie Walker, Antiquity, etc. Currently, they have over 37 manufacturing facilities in India and boast a strong distribution network.

    2. Sula Vineyards

    Sula Vineyards is a leading wine producer in India. The company was founded in the year 1999 by Rajeev Samant in Nashik, Maharashtra. Sula’s distribution network covers India and several international markets. Sula Vineyards produces a diverse range of wines including red, white, rose, sparkling and dessert wines. Sula Vineyards is well-positioned for continued success.

    3. United Breweries

    The company was bought by the late Mr Vittal Mallya in 1947. Since then, it has consistently grown and never looked back. United Breweries is considered the largest manufacturer in India with over 60% market share in the beer market and is headquartered in Bangalore. The company was established in the year 1915 with five breweries in south India. The company owns numerous iconic brands like Kingfisher, McDowell, Royal Stag, etc.

    4. Radico Khaitan

    Radico Khaitan is a top Indian manufacturer of Indian-Made-Foreign-Liquor (IMFL). It was founded in the year 1943 as Rampur Distillery & Chemical Company Limited. It has now become a major bulk spirits supplier and bottler, now have over fifteen organically grown brands. Khaitan’s portfolio includes a wide range of IMFL products such as Black Magic, 8 PM, Magic Moments, Rampur, etc.

    Radico Khaitan is the fourth largest company in India with a strong presence in North India and exports its products to over 30 countries. It has also created an international division, namely Radico International in the year 2003 and introduced brands such as Beck’s Beer and wines from E&J Gallo in the Indian alcohol market.

    5. Tilaknagar Industries

    Tialknagar Industries is a prominent Indian liquor company and is well-recognised for its assorted portfolio of IMFL and extra-neutral alcohol (ENA). The company was established in the year 1933 under the leadership of the Dahanukar family. Their journey began with the Maharashtra Sugar Mills and the company still holds a rich history in the Indian liquor market.

    Tilaknagar Industries offers a wide range of products such as brandy, whiskey, vodka, gin, rum etc. The company has a strong distribution network and its products are also exported to international markets in East & South Asia, Europe, Africa, etc.

    6. Globus Spirits

    Globus Spirits was established in the year 1993 as Globus Agronics Limited. Today Globus Spirits is one of the largest manufacturers and sellers of IMFL in India. The company offers a variety of brands that cater the consumer preferences and include premium, value, and bulk alcohol. The premium segment includes GR8 Times, White Lace, Napoleon, Governors’ Reserve Blue etc. Value segment includes Winner Gold, Marvel Blue, Golden Grape, etc. The bulk alcohol segment includes Grain Neutral Alcohol, Fusel, Bioethanol etc. Globus Spirits operates four fully integrated plants across West Bengal, Bihar, Haryana, and Rajasthan.

    7. Som Distilleries and Breweries

    Som Distilleries & Breweries Ltd. (SDBL) is a prominent integrated AlcoBev, Bhopal-based manufacturer. The company was founded in the year 1993 and has established itself as a major player in the Central Indian Market, especially in the segment of beer and whiskey. Some of the widely sold products include beers like Hunter Strong Premium beer, Woodpecker Wheat, etc. And whiskeys like Pentagon, Milestone 100, etc. Vodkas like White Fox, rums, and other ready-to-drink beverages.

    Factors Affecting Liquor Stocks

    Factors affecting alcohol stocks

    Several factors impact the performance of the liquor stocks. Let us look at some of the key factors that affect the performance of the liquor stocks.

    • Inflation – Rising inflation can increase the production cost of the alcohol companies squeezing the profit margins and stock prices.
    • Taxation & pricing – Liquor stocks are sensitive to changes in taxation policy. Higher taxes can lead to increased costs for companies and can discourage consumption.
    • Economic Growth – Strong economic growth of the economy results in increased disposable income in the hands of consumers and leads to a sudden rise in spending on discretionary items like alcohol.
    • Regulatory Procedures – Complex licensing & regulatory procedures can be a hurdle for liquor companies thereby increasing the operational costs. And negatively affecting their profitability.
    • Consumer Trends – Shifts in consumer preferences with people trying to adopt a healthy lifestyle can also affect the demand and sales of liquor. Companies need to adapt to the evolving trends of consumers and produce accordingly.
    • Currency Exchange Rates – Companies with international operations and exporting their products to other foreign countries can be deeply affected by exchange rate fluctuations affecting both producers and importers.

    Market Capitalisation and Current Price

    The table below shows the current market price and market capitalisation of the above-mentioned alcohol stocks (as of 15 January 2024):

    StockCurrent Market Price (INR)Market Capitalisation (INR crs)
    United Spirits                                                            1,095                                                                   79,749
    United Breweries                                                            1,795                                                                   47,469
    Radico Khaitan                                                            1,656                                                                   22,143
    Sula Vineyards                                                               632                                                                     5,339
    Tialaknagar Industries                                                               257                                                                     4,944
    Globus Spirits                                                               821                                                                     2,364
    Som Distilleries and Breweries                                                               276                                                                     2,142

    Read Also: How to find and identify undervalued stocks

    Conclusion

    Each alcohol company in India comes with its own set of strengths and weaknesses. Indian liquor industry offers a wide range of products and people can choose according to their tastes and preferences.

    Remember that the alcohol industry is always subject to various regulations and concerns. Taxation & Alcohol Bans can significantly affect the alcohol industry.

    S.NO.Check Out These Interesting Posts You Might Enjoy!
    1Top Sugar Companies In India
    2Business Cycles of a Company
    3Miniratna Companies in India 2025
    4How Many Companies Are Listed on NSE & BSE?
    5Mukesh Ambani Companies List 2024: Mukesh Ambani Stocks

    Frequently Asked Questions (FAQs)

    1. What is the full form of IMFL?

      Indian-Made-Foreign-liquor.

    2. Mention the top alcohol stocks of India.

      United Breweries, Globus Spirits, Sula Vineyards, Radico Khaitan, Tilaknagar Industries, etc.

    3. What factors can affect the alcohol stocks?

      Factors like inflation, regulatory changes, currency exchange rates, economic growth, etc.

    4. How many listed alcohol stocks are there on Indian exchanges, i.e., NSE and BSE?

      As of January 2024, there are more than 15 listed alcohol stocks in India.

    5. Who manufactures “Rampur” whiskey which recently won the best world whisky award in the prestigious John Barleycorn awards?

      Rampur is manufactured by Radico Khaitan Limited.

  • Regular vs Direct Mutual Funds: Make The Right Investment Decision

    Regular vs Direct Mutual Funds: Make The Right Investment Decision

    As of December 2023, the Indian Mutual Fund Industry has over 50 lakh crores under management, and if your majority of the investments are in Mutual Funds, then it is high time that you should know the difference between Regular and Direct mutual funds.

    What are Mutual Funds

    Mutual funds collect money from several investors to invest in a diversified portfolio of stocks, bonds, or other assets. These funds are managed and curated by professional fund managers and hence become suitable for investors who have less time and expertise to manage their portfolios.

    When you invest in mutual funds, NAV (Net asset Value) is allotted to you, which reflects the net value of the assets that are chosen by the fund manager to invest your money in. Furthermore, SIPs and lump-sum are different ways through which we can invest in mutual funds.

    Benefits of Investing in Mutual Funds

    Benefits of Direct Mutual Funds
    1. Mutual funds help you diversify your capital across asset classes. This spreads your risk and mitigates the impact of losses, if any, in a single holding.
    2. Mutual funds are managed by professional fund managers who understand market dynamics. These managers help you reduce the pressure of managing your portfolio.
    3. Investing in mutual funds is a hassle-free way to access a diversified portfolio. You do not need to keep an eye on every asset class, such as stocks, bonds, debentures, etc.
    4. Investment amounts for mutual funds are low as compared to directly buying stocks or bonds. You can start your investment journey today with an amount as low as INR 500.
    5. There’s a vast array of mutual funds available catering to diverse investment goals, risk appetites, and time horizons. You can choose the fund that best aligns with your objective.

    Regular Mutual Funds

    Every mutual fund scheme offers two ways to invest: Direct Route and Regular route. A regular mutual fund is a type of mutual fund that is sold through intermediaries such as brokers and distributors. Investment in mutual funds through regular mode attracts a higher TER* because of commission involved.

    If you’re not familiar with the word TER, it stands for Total Expense Ratio, or say, Expense Ratio. Fund Managers charge an annual fee that is charged to investors basis their total investment and the same can be analysed through TER.

    Did you know?

    Every mutual fund in India comes under Regulation 52 of the SEBI MF Regulations, in which the maximum TER allowed is 2.5% for the first INR 100 crores of total net assets.

    Here are some interesting features to know about regular mutual funds:

    • Regular mutual funds carry a high expense ratio, i.e., a larger portion of your investment will be eaten up by fees, thereby reducing your returns.
    • The expense ratio is the cost linked with managing and operating a mutual fund. It is expressed as a percentage of the fund’s average net assets and represents the total annual expenses charged to the fund.
    • Regular mutual funds are a good investment option for investors who do not have enough time and knowledge to do their research on mutual funds, and are willing to pay a higher expense ratio and seek professional investment advice.
    • Regular mutual funds are distributed through multiple channels such as, banks, SEBI-registered financial advisory firms, and brokerage firms.

    Direct Mutual Funds

    Investing in Direct mutual funds means buying directly from the Asset Management Company (AMC) without the involvement of any intermediaries like brokers or distributors. The investor invests through the website of the AMC, mobile app or offline. Further, there are certain new-age brokers as well which provide the facility of investing in direct plans.

    Here are some interesting features to know about direct mutual funds:

    • Since there are no distributors involved, direct plans have a low expense ratio.
    • The lower expense ratio leads to a higher net asset value (NAV).
    • The investor in direct mutual funds has more flexibility as compared to regular ones.
    • Direct mutual funds are the best fit for individuals who understand the fundamental concept of mutual funds, prefer a do-it-yourself (DIY) approach, and are willing to do thorough research and analysis.

    Regular Mutual Fund vs. Direct Mutual Fund

    1. Regular mutual funds are sold through intermediaries such as distributors and brokers, whereas direct mutual funds are bought directly from the asset management companies who manages the fund.
    2. Unlike direct mutual funds, regular mutual fund has a high expense ratio because of intermediaries. The regular mutual fund has a lower NAV because the distributor’s commission is deducted from the invested capital whereas direct mutual funds offer a high NAV for the same investment amount because of the low expense ratio.
    3. A higher expense ratio leads to lower returns in regular plans as compared to direct plans.
    4. Regular mutual fund often comes with professional advice (investment advisor), while direct funds are self-directed and DIYs.

    Breakdown of Expenses

    The fee structure of direct and regular mutual funds is more or less the same. Let us dive deeper to know the difference.

    • Expense Ratio – As discussed above, this covers the fund’s operating costs such as management fees, custodian fees, and administrative expenses and is generally expressed as a percentage of the asset under management. The expense ratio for direct mutual funds is lower, and in the case of regular mutual funds expense ratio is generally higher due to the inclusion of distribution charges.
    • Transaction charges – Some of the direct or regular mutual funds may charge a small amount for buying or selling mutual fund units.

    How to identify a Mutual fund as Direct or regular?

    How to identify if plan is regular or direct

    Suppose you want to invest in a mutual fund scheme but want to avoid seeking professional advice. Then how will you recognize whether the fund you have chosen is direct or regular? We got you covered!

    1. The word ‘direct’ will be there in the name of the scheme.
    2. The expense ratio of a direct scheme will always be lower than that of a regular scheme.
    3. You can also refer to your consolidated account statement. If the plan is direct, no ARN* number will be mentioned in the account statement.

    *ARN Number is the AMFI registration number issued to the mutual fund distributors and brokers.

    Impact of Expense Ratio on Returns

    Impact on returns

    Let’s understand this with an easy example:

    • Initial Investment – INR 1 lakh
    • Time Period – 20 years
    • Rate of Return – 15%
    • Expense Ratio – 2.5% in regular plan and 1.5% in direct plan

    After 20 years, your investment:

    In Direct Plan– INR 12.58 lakhs

    In Regular Plan – INR 10.54 lakhs

    That’s a difference of almost INR 2 lakhs, so now you can get an idea of how the difference of just 1% can significantly impact your returns over a long period.  

    Conclusion   

    If you are muddled between the two and cannot decide what to choose then Regular mutual funds are the best fit for investors who value professional guidance, are new to the world of investing, and lack financial literacy.

    Direct mutual funds can be a match for investors whose primary focus is to maximise the returns and who are cost-conscious. They are experienced investors who are comfortable with independent research and decision-making and are well-versed in managing investments directly.

    Eventually, the choice depends on the individual preferences and their financial goals. However, we would suggest seeking professional advice if you are not sure which fund aligns perfectly with your investment objective.

    Frequently Asked Questions (FAQs)

    1. What is the difference between direct and regular mutual funds?

      Direct mutual funds are bought directly from the AMC, whereas regular funds are bought through intermediaries like brokers and distributors.

    2. Which is better: Direct or Regular Mutual funds?

      The answer to this question depends on the individual’s needs and preferences. However, direct funds come with a lower expense ratio and provide better returns than regular mutual funds.

    3. Can I change my investment plan from a regular to a direct mutual fund?

      Yes, you can change your investment plan from a regular to a direct plan by contacting the asset management company. However, there are certain things which investors should keep in mind before switching from a regular to a direct plan:The change in investment plan will be treated as a withdrawal, which means if there is any exit load, then you have to incur exit load charges if you redeem your investment before the exit load period. Further, there are tax consequences depending on the type of fund and time horizon.

    4. Which one gives higher returns?

      Generally, direct funds have a lower expense ratio as compared to regular funds because there is no intermediary involved in direct mutual funds. Therefore, effectively, direct funds provide better returns than regular funds.

    5. How to know the expense ratio of regular and direct plans of the same scheme?

      You can know the expense ratio from the factsheet of mutual funds, which is available on the website of the Asset management company.

  • A Guide To Fixed Deposits: Exploring Types And Interest Rates

    A Guide To Fixed Deposits: Exploring Types And Interest Rates

    If you are someone who is looking for hassle-free and low risk investment options, then you have come to the right place. We will uncover the Fixed Deposits – types and factors affecting them in this blog.

    What is a Fixed Deposit?

    Fixed deposit (FD) is a tenured deposit account provided by the Banks or NBFCs (Non-Banking Financial Companies) that provides investors with a higher interest rate than a regular savings account until the given maturity date. Most of the FDs offered by banks don’t allow premature withdrawal. However, some banks allow premature withdrawal under certain situations subject to penalties. Investment in fixed deposits is considered a risk-free investment.

    FDs Interest Rate

    Did you know?

    Your bank FD is secured up to 5 lakhs by DICGC* (Deposit Insurance and Credit Guarantee Corporation).

    DICGC is a specialised division of the Reserve Bank of India.

    Types of Fixed Deposits

    There are multiple types of Fixed Deposits available to invest:

    Types of FD

    Regular Fixed Deposits

    Regular FDs are the most basic fixed deposits. You deposit a lump sum for a fixed tenure, and earn an interest at a fixed rate. These are suitable for people who are not willing to take risks and looking for a safe and secure investment option.

    Senior Citizen Fixed Deposit

    It is a special type of fixed deposit account that offers 0.25% to 0.50% higher interest rate than regular FDs for individuals aged 60 and above. For a steady income, you have the option to receive the interest pay-out on a regular basis.

    Tax-saver Fixed Deposit

    Tax-saver fixed deposits allow you to save on taxes while you earn interest on your regular investments. It comes with a lock-in period of 5 years and provides you with a tax deduction of up to INR 1.5 lakh per year under Section 80 (C) of the Income Tax Act.

    Interest in tax-saver FD is paid out on regular intervals and is taxable as per your income tax slab. Tax-saver FDs can be a good option for individuals who want to save on taxes while earning a guaranteed return.

    Flexi Fixed Deposit

    A flexible fixed deposit is an account that offers you the features of both a savings account and an FD account. Unlike regular FDs, you can partially withdraw funds from your Flexi FD account without a penalty, but only up to a defined limit. However, this provision varies from bank to bank. You can also make additional deposits to your existing Flexi FD account to increase your returns. Flexi fixed deposits are suitable options for investors with short-term financial goals.

    Cumulative Fixed Deposit

    In a cumulative fixed deposit, the interest earned is not periodically paid out to the investor instead, it gets added to the principal amount. Also, the interest earned is compounded annually. Cumulative FDs offer a lump-sum payout on your maturity date.

    Non-Cumulative Fixed Deposits

    In a non-cumulative FD, interest is regularly paid out to the investor instead of being re-invested and compounded. This makes it a suitable option for investors who seek regular income from their investments.

    Corporate FD

    Corporations and Non-Banking Financial Companies (NBFCs) accumulate deposits for a fixed period from investors. These deposits, like Bank FDs, are collected at predetermined interest rates and are known as Corporate Deposits. Similar to Bank FDs, Corporate FDs offer varying investment periods and assured returns. Additionally, they offer higher interest rates as compared to Bank FDs.

    Interest rates in corporate FDs are primarily based on the credit quality of the issuer. The lower the rating, the higher the credit default risk; therefore, to compensate for this, they offer higher interest rates as compared to Corporate FDs having high credit ratings.

    Difference between Bank FD & Corporate FD      

    Difference between Corporate and Bank FD

    While investors can choose either of the FDs based on their needs, knowing the difference between the two is necessary to make an informed decision.

    Below are some key points based on which you can easily distinguish between Corporate FDs and Bank FDs.

    1. Unlike bank FDs, Corporate FDs offer a higher interest rate of 7% to 8.5%. Bank FDs offer lower interest rates depending upon the period chosen by the investor.
    2. It is a common practice among investors to withdraw their fixed deposit amount. If you do the same thing, keep in mind that corporate FDs levy additional charges on premature withdrawals, which is comparatively higher than regular Bank FDs.
    3. Corporate FDs are monitored by credit rating agencies like CRISIL, ICRA, etc., for compliance whereas Bank FDs are secured under the guidelines of the RBI.
    4. Bank FDs are a safer option to invest since they are backed by RBI while corporate FDs carry higher risk, and their safety depends upon the creditworthiness of the issuing company. Further, as discussed above, bank FDs are secured up to INR 5 lakhs by DICGC.

    Tips for maximising FD Returns

    1. Choose the right kind of FD depending on your financial needs and objectives.
    2. Compare the interest rates across banks and NBFCs to find the most competitive rates before you invest.
    3. If you do not need regular interest income, consider choosing cumulative FDs. As explained earlier, cumulative FDs provide you the benefit of compound interest, thus resulting in higher returns.
    4. Instead of investing your money in a single FD, consider creating a ladder by spreading your investments across FDs with different tenures and FDs mature, and reinvest them in other FDs with higher interest rates. This will help you maximise the returns generated.
    5. Be mindful of the penalties linked with the FDs before you withdraw your invested amount.
    6. Interest earned on FDs is taxable. Consider the tax implications and plan your investments to minimise your burden of the tax.

    Read Also: Why Debt Funds Are Better Than Fixed Deposits of Banks?

    Factors Affecting FD Interest Rates

    There are several factors that impact the Interest rate offered by Fixed Deposits. Some of the important factors are as follows:

    Inflation

      When inflation is high, banks generally offer high-interest rates on fixed deposits to compensate for the decline in the purchasing power of money.

      Repo Rate

        The repo rate is the rate at which the banks borrow money from the Reserve Bank of India (RBI). When the RBI increases the repo rate, the lending rates and fixed deposit rates of the banks also increase, and vice versa. In case of increasing interest rate scenario, consider investing in short-term investments.

        Tenure

          Generally, long-term FDs offer higher interest rates than short-term FDs because, in the case of long-term FDs, banks can use the FD amount invested with them for a longer horizon and can earn good returns on their investments.

          How to choose the right FD

          Choosing the right FD for your needs involves assessing several factors to ensure that you receive the best returns. Consider below mentioned points when choosing FD:

          1. Analyse your goals and compare the interest rates offered by different banks and NBFCs.
          2. Choose an investment tenure that best aligns with your financial goals.
          3. Go for FDs issued by recognised and well-established banks. In the case of Corporate FDs, check the credit rating of the issuer to ensure a margin of safety.

          Read Also: Best Alternatives To Fixed Deposits

          Conclusion

          Fixed deposits are considered a reliable investment option for investors who seek to preserve capital and want to earn returns at the same time. With assured returns and low risk, fixed deposits are a popular choice among investors of all ages.

          FAQs

          1. What is FD?

            Fixed deposit (FD) is a tenured deposit account provided by banks or NBFCs (non-banking financial companies), which provides investors with a fixed interest until the given maturity date.

          2. Are interest rates of FD similar in every bank?

            Interest rates of FDs vary from bank to bank. Generally, they are in a similar range.

          3. What is Repo Rate?

            The repo rate is the rate at which the banks borrow money from the RBI.

          4. Does the bank levy a penalty on pre-mature withdrawal of FDs?

            Yes, different banks have different penalty provisions.

          5. What is the lock-in period of Tax Saving FDs?

            Tax saving FDs come with a lock-in period of 5 years from the date of deposit.

          Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

        1. What To Expect In The Budget 2024?

          What To Expect In The Budget 2024?

          Last year, on 1 February 2023, i.e., on the budget day, the govt. made significant announcements such as increased spending on infrastructure, several aids for agriculture and entrepreneurs, increase in tax rebate, etc., for the FY 2023-24.

          Now, the budget for the FY 2024-25 is yet to be presented. Finance Minister Nirmala Sitharaman will present the interim budget 2024-25 on February 1, 2024.

          In this blog, we will discuss what to expect in the upcoming budget and past year trends.

          Budget

          What is Interim Budget?

          An interim budget is a temporary financial plan presented by the government when the general elections are forthcoming. Compared to the regular budget, the interim budget is less comprehensive and does not introduce many policy changes.

          An interim budget generally includes a review of the previous year’s budget, i.e., the government’s income and expenditure for the previous financial year and an estimate for the upcoming financial year.

          What to expect in the upcoming Budget?

          What to expect

          Finance Minister Nirmala Sitharaman will present the budget on 1 February; since it’s an interim budget before the general elections scheduled in May 2024, we are not expecting to have any major policy changes or announcements. The major focus will likely be maintaining macroeconomic stability and continuing existing schemes.

          However, there are some expectations about what can be included in the Budget 2024.

          Below are some key areas to watch:

          1. Under section 80D, the deduction limit for medical insurance premiums can be increased from INR 25,000 to INR 50,000 in the case of individuals and from INR 50,000 to INR 75,000 in the case of senior citizens.
          2. Currently, TDS deducted on property acquisitions is 1% if the value of the property exceeds INR 50 Lakhs. The government is planning to ease TDS compliance for people who wish to invest in real estate.
          3. Bangalore is to be considered a metro city for the exemption of the house rent allowance for its residents, which means 50% of basic pay will be determined as HRA. As of now, Bangalore is not classified as a metro city for HRA deduction, means only 40% of basic pay is determined as HRA.
          4. The government’s subsidy* bill can see a slight increase in the upcoming financial year 2024-25 because of the expansion of the central government’s free food scheme.

          *If you’re not familiar with the word, Subsidy is a kind of financial aid the government provides to individuals, businesses, or institutions. It can include reductions or exemptions from taxes, loans at lower interest rates, cash transfers or grants.

          1. We can also expect a new reverse charge-based mechanism to improve GST compliance. This will avoid monthly tax payment obligations by small business vendors since buyers who are large taxpayers with turnovers above INR 100 crore will directly pay the tax to the government.

          Read Also: Unveiling the Budget 2024: Key Takeaways

          A quick look at FY 2023-24 allocation of Budget.

          Quick look

          Some of the major sectors accounted for 53% of total estimated expenditure in the previous financial year budget:

          1. Defence – the budget of the defence sector was about INR 593,000 crore and accounted for over 13% of the total expenditure of the central government. In 2023-24, its allocation is estimated to be marginally lower than 2% of GDP.

          In the interim budget, we can expect a marginal rise of 1-2% for the defence sector.

          1. Railways – In the FY 2023-24, the government has allocated a budget of around INR 240,000 crore for capex in the railway sector.

          We can expect a rise of 2% for capex in the railway sector in the forthcoming FY 2024-25 budget.

          1. Road Transport & Highways – A budget of INR 270,000 crore was allocated to the road & transport ministry in the FY 2022-23, which was 25% higher than the revised estimates for 2022-23.

          This year, we can expect an estimated rise of 30% in the upcoming interim budget.

          1. Agriculture – India, an agricultural country, had an allocation of INR 125,000 crore in the FY 2023-24, which was a 5% increase over the revised estimates of 2022-23.

          A rise of 5-7% for agriculture and farmer’s welfare can be expected in this financial year.

          1. Communication – the Indian government primarily focused on this sector with a budget of INR 1 lakh crore in the previous financial year of 2023-24.

          This year we can expect a rise of 30-35% in budget allocation of this sector.

          Subsidies for FY 2023-24

          Expenditure on subsidies accounts for a major portion of the government’s total budget, with an amount of INR 400,000 crore.

          The three major types of subsidies provided by the government were food subsidies, petrol subsidies and fertiliser subsidies, other subsidies such as assistance provided to state agencies, agricultural produce, price support schemes, etc.

          Chances are likely that subsidies will remain unchanged for FY 2024-25 as well.

          Disinvestment Target

          Disinvestment is the process of the government reducing its ownership stake in the public sector undertakings (PSUs). It can be done through selling shares of the PSU, merging PSUs, and liquidating PSUs.

          The disinvestment target of the government for FY 2023-24 was INR 51,000 crore, we can expect a decline in upcoming interim budget as the target of the previous financial year is unachieved.

          Tax Regimes

          We can expect the tax regimes to remain unchanged for the FY 2024-25 since last year there was a major relief in the new tax regime. And if we analyse the previous budgets where the tax structure was changed, it is highly unlikely that this year will bring any major change in the tax structure.

          For your reference, have a look at the old & new tax regimes:

          Old Tax Regime

          Income SlabIncome Tax Rate
          Up to INR 2,50,000Nil
          INR 250,000 to INR 5,00,0005% (tax rebate is available u/s 87A upto 5 lakhs)
          INR 500,001 to INR 10,00,00020%
          More than INR 10,00,00030%

          New Tax Regime

          Income SlabIncome Tax Rate
          Up to INR 3,00,000Nil
          INR 3,00,001 to INR 6,00,0005% (tax rebate is available u/s 87A upto 7 lakhs)
          INR 600,001 to INR 9,00,00010% (tax rebate is available u/s 87A upto 7 lakhs)
          INR 9,00,001 to INR 12,00,00015%
          INR 12,00,001 to INR 15,00,00020%
          More than INR 15,00,00030%

          Read Also: Budget 2024-25: How Will New Tax Slabs Benefit The Middle Class?

          Market’s reaction on the Budget Day

          Previous year budget trends

          Budget announcement day is considered a big event for the general public and particularly for the market participants. The market’s reaction on the budget day is quite volatile, with a history of both positive and negative swings.

          Different sectors react differently to the budget depending on the announcements affecting them. Ultimately, the market’s reaction on the day of the budget can be unpredictable.

          It is interesting to note that the Budget Day reaction hasn’t been too extreme, with gains and losses not exceeding 2% in 8 out of the last 10 years. An evaluation of market history since 2013, which includes ten regular budgets and two interim budgets, indicates that the Union Budget has been a 50-50 show so far. In the year 2021, Sensex saw its best budget day gain since 1999 and ended 5% higher. We can say that it’s been a bit of a hit-or-miss situation.

          Further, experts suggest not to take directional positions before budget announcement day as the budget can significantly impact the market movement, and if the market moves in opposite direction to your trade, that will result in significant losses.

          Conclusion

          After a successful FY 2023-24, leading institutions like World Bank and RBI estimated India’s growth in FY2024 -25 to be between 6.3% to 6.4%. However, global economic uncertainty and geopolitical scenarios can influence the conclusions of Budget 2024.

          Given the elections, majority measures for farmers and middle-class families are probable. Also, investments in infrastructure to boost India’s manufacturing competitiveness can be one of the main agenda of the government in the upcoming budget.

          Frequently Asked Questions (FAQs)

          1. Who presents the budget?

            Finance Minister of India.

          2. Are markets more volatile near the budget?

            Generally, markets are more volatile near the budget day as different investors have different expectations. However, this increased volatility cools off after the announcement of the budget.

          3. Which day will the government present the budget for FY 24-25?

            1st February, 2024.

          4. What is subsidy?

            A subsidy is a financial aid that the government provides to individuals, businesses, or institutions.

          5. Will the budget for 2024 affect taxes?

            Tax changes are possible, but major reforms are unlikely in the interim budget. However, we can expect some new tax exemptions.

          Disclaimer: The securities, funds, and strategies mentioned in this blog are purely for informational purposes and are not recommendations.

        2. Decoding Credit Risk Funds In India

          Decoding Credit Risk Funds In India

          Do you know there is a category of mutual funds which specifically invests in junk bonds? If you’re not familiar with the word, Junk bonds, as the name suggests, are low quality bonds which have a high risk of default. But wait, high risk means high returns? Yes! To compensate for the high default risk, these bonds provide greater returns than other highly rated bonds.

          If you’re new to the mutual fund world, check out our blog: Mutual Funds: Meaning, Types, Features, Benefits and How They Work.

          What are credit risk funds?

          Credit Risk Funds are a category of debt mutual funds that primarily invest a minimum of 65% only in AA and below-rated corporate bonds.

          Did you know?

          Credit Risk Funds are earlier known as “Credit Advantage Fund” or “Credit Opportunity Fund”.

          Credit Risk Funds

          How do Credit Risk Funds work?

          Fund managers seek out debt funds with credit ratings that generally range from BBB to C since these bonds offer higher interest rates to compensate for the risk of default.

          To diversify the risk, the fund manager will invest across multiple bonds of different companies to avoid overexposure in a single issue or company.

          Checkout our blog on debt mutual funds: What is Debt Mutual Funds: Invest in the Best Debt Funds in India

          Readc Also: Types of Mutual Funds in India

          Advantages of Credit Risk Funds

          Advantages of Credit Risk Funds
          1. High Yield

          Credit risk funds offer investors high yields as compared to other debt funds. This can fascinate investors who wish to seek relatively higher returns.

          1. Diversification

          Investors can get exposure to high-yield bonds, although with higher risk. Further, credit risk funds have investments across multiple companies and issues such that exposure to any sector or company is significantly reduced. For risk-seeker investors, this enhances the overall portfolio performance.

          1. Professionally Managed

          Credit risk funds are managed by professional fund managers having specialisation in credit risk assessment. Their expertise helps the fund in generating good returns considering the risk profile.

          Disadvantages of Credit Risk Funds

          1. Risk of Default

          Junk bonds carry a high possibility of default. The lower credit quality of the bonds increases the chance that the issuer may fail to repay the principal amount.

          1. Volatility

          Credit risk funds are highly volatile compared to other debt options, i.e., the fund’s net asset value (NAV) changes significantly which may not give positive returns to investors for a short period.

          1. Not Suitable for all Investors

          These funds are a fit for investors with a high-risk tolerance and long-term investment horizon.

          1. Management Costs

          Credit risk funds need active oversight and analysis. This leads to higher expense ratios and reduces the overall returns. Generally, the expense ratio of credit risk funds is more than other categories of debt mutual funds.

          Read Also: Decoding Hedge Funds In India – Types, Advantages And Distinctions

          Impact of Interest Rate Changes on Credit Risk Funds

          • When interest rate rises, the value of existing bonds declines, since bond prices and interest rates share an inverse relationship. However, credit risk funds invest in low-quality bonds that have high coupon rates to compensate for the increased risk of default, i.e., a decline in the value of bonds may be less visible, and the higher coupon rates can still provide good returns even if the interest rates are rising.
          • Credit risk funds are sensitive to changes in credit spreads. Credit spread is the additional yield that investors demand for holding riskier bonds over safe and secure government bonds.
          • There is a thing called “Duration” in the bond universe, which is the measure of the sensitivity of price change of a bond for a change in the interest rate. The higher the duration, the more sensitive the bond is to the changes in interest rates. Investors should keep in mind the duration of the credit risk funds before investing as it can significantly impact the performance of funds in a short period.

          Risks associated with Credit Risk Funds

          Risk of credit risk funds

          Credit Risk

          The primary risk that is involved in credit risk funds is “Credit Risk” or the “Risk of Default” by the bond issuers. Bonds with high coupon rates are more exposed to default risk and can lead to a decline in the fund’s value. 

          Liquidity Risk

          Credit risk funds are generally less liquid when compared to other debt funds because these funds hold bonds that are of low credit quality, making it difficult to buy or sell them in the market.

          Concentration Risk

          Several credit risk funds have concentrated exposure to specific sectors, which can increase the risks if those sectors face any kind of economic downturn or challenge.

          Interest Rate Risk

          As we discussed above, just like other fixed-income securities, credit risk funds are sensitive to changes in interest rates. When interest rates rise, the prices of existing bonds in the portfolio may fall, leading to potential capital losses.

          Credit Risk Funds vs. Other Mutual Funds

          • Credit risk funds carry high risk and potential of high returns since they invest in lower-rated corporate bonds, whereas the risk and returns of other mutual funds vary depending on the category of investment (equity, debt, balanced, etc.)
          • Compared to other mutual funds, credit risk funds are more volatile because of sensitivity to changes in credit ratings.
          • Credit risk funds are less liquid due to low demand than other debt mutual funds like liquid funds, low-duration funds, etc.
          • Credit risk funds are suitable for investors with high-risk tolerance and long-term investment horizons, and other mutual funds say liquid funds are suitable for a wide range of investors.

          Historical Performance of Credit Risk Funds

          Credit risk funds generally offer high returns as compared to other categories of debt funds, and annualised returns can range somewhere between 7% to 14% depending on the fund and the market conditions.

          As of January 2024, there are more than 15 credit risk funds available in India from different Asset Management Companies. The table below shows the annualized performance of a few credit risk funds that we selected on a random basis:

          Funds1 Year Return (%)3 Year Return (%)5 Year Return (%)7 Year Return (%)
          Aditya Birla Sun Life Credit Risk Fund – Direct Plan7.737.647.247.51
          Axis Credit Risk Fund – Direct Plan7.866.566.947.05
          HDFC Credit Risk Debt Fund – Direct Plan7.356.397.957.56
          ICICI Prudential Credit Risk Fund – Direct Plan8.036.868.258.06

          Are Credit risk funds suitable for you?

          Suitability of credit risk funds

          Investments in credit risk funds expose your portfolio to high risk, and if your main purpose is to preserve your capital (assuming you are a risk-averse investor), then chances are likely that credit risk funds may not align with your financial goals.

          However, if you are looking for diversification in your debt portfolio, can stay invested for a longer horizon, and are familiar with the risks involved, you can choose credit risk funds to diversify your portfolio and generate good returns.

          But remember to seek advice from a financial advisor. A professional advisor will analyse your investment goals and curate your portfolio accordingly.

          Read Also: What is Debt Mutual Funds: Invest in the Best Debt Funds in India

          Conclusion

          Credit risk funds are considered a double-edged sword. They offer high returns but at a cost of high risk. Although, the investor needs to analyse the credit quality of the bonds before investing in any credit risk fund and if in any case, the investors want to exit these funds, they need to assess and monitor the fund’s portfolio regularly.

          If you are curious to learn more about the taxation of mutual funds in India, check our blog: Decoding Mutual Funds Taxation In India

          Frequently Asked Questions (FAQs)

          1. What are credit risk funds?

            Credit Risk Funds are a category of debt mutual funds that primarily invest a minimum of 65% only in AA and below-rated corporate bonds.

          2. Do credit risk funds offer higher returns as compared to other debt mutual funds?

            Yes, they generally offer higher returns as compared to other categories of debt mutual funds such as liquid funds, money market funds, etc.

          3. Credit risk funds are suitable for what kind of investors?

            Credit risk funds are suitable for investors with a high-risk tolerance and long-term investment horizon.

          4. Should you seek professional help while investing in credit risk funds?

            It is recommended to seek professional advice before investing in Credit risk funds.

          5. Credit Risk Funds are previously known as?

            “Credit Opportunity Fund”  & “Credit Advantage Fund”.

        3. RBI Retail Direct Platform

          RBI Retail Direct Platform

          RBI Retail Direct Platform

          Ever wondered how to invest in government securities directly without any intermediary? In this blog, we’ll uncover how you can do this at no cost with a platform launched by India’s central bank.

          Retail Direct Platform

          RBI Retail Direct platform summary

          The Reserve Bank of India (RBI) launched an online platform in October 2021, the RBI Retail Direct Platform. The objective of this platform is to simplify access to government securities for retail investors who earlier invested in G-secs through intermediaries such as banks or brokers.

          This scheme allows retail investors to open a Gilt Securities Account – Retail Direct Gilt (RDG). RDG account will allow investors to buy or bid government securities directly in the primary market as well as buy or sell in the secondary market.

          Government securities can be a good long-term investment option for retail investors. They are considered the safest instruments as they are backed by the sovereign guarantee.

          Any individual who is a natural person with a domestic savings account, a PAN card (permanent account number), any officially valid document for KYC such as aadhar card, a valid email ID, and a registered mobile number can open an RDG account.

          Read Also: RBI Action On Kotak Mahindra Bank: Should You Invest?

          Types of Securities

          Using the RBI Retail Direct Platform, the investor can invest in the following Government Securities:

          1. Government of India Treasury Bills (T-Bills) – Treasury bills are short-term money market debt instruments. The RBI issues the T-bills in India. Currently, T-bills are available in three maturities – 91 days, 182 days, and 364 days.
          2. Government of India dated securities (Dated G-secs) – Dated Government securities are a type of bond issued by the government of India. These are debt instruments and maturity of these securities ranges from 5 years to 40 years. The coupon or say interest rate on these securities can be either fixed or floating. There are multiple types of Dated securities: floating rate bonds, fixed rate bonds, zero coupon bonds, inflation indexed bonds, etc. 
          3. State Development Loans (SDLs) – SDLs are dated securities. State governments issue these securities to fund their deficit. SDLs are generally issued for 10 years and Investor receives the interest half-yearly.
          4. Sovereign Gold Bonds (SGBs) – The RBI issues the SGBs on behalf of the govt. of India. They are denominated in grams of gold. SGBs are alternatives for digital or physical gold. The SGBs will be redeemed on maturity in cash and have a lock-in period of 8 years. Further, apart from capital gains from the increase in gold prices, investors also receive 2.5% interest p.a. on the bond amount.

          Dated G-secs, SDLs, and T-Bills are issued in the primary market through auctions executed by the Reserve Bank of India (RBI). An investor, depending upon eligibility, can bid in an auction under Competitive Bidding or Non-Competitive Bidding.

          Features / Benefits of Retail Direct Platform

          Types of securities available in RBI Direct Platform
          1. Easy Access – Investors can easily access and buy/sell Government securities such as treasury bills, Government of India bonds, etc. through the platform.
          2. Simple to Use – The platform is user-friendly, making it easy for even first-time investors to invest in Government securities.
          3. Higher Returns – Investors can earn good interest by investing in G-secs through RBI Retail direct platform. SDLs and other long term G-secs generally provide better returns than regular bank FDs.
          4. No Transaction Fees – The platform does not charge any transaction fee for your investments as there is no intermediary. Further, there is no account opening fee.
          5. Safe & Secure – RDG is an RBI-backed platform that is completely safe and secure to use.

          How to open RDG (Retail Direct Gilt account)

          One can easily open an RDG account by following a few simple steps:

          1. Visit the website and register using the registration link to open an account.
          2. Enter the details asked such as your name, PAN number, e-mail, address, etc. After that, authentication of mobile number and email address using OTP.
          3. After completing above steps, KYC verification is needed to be done.
          4. Once the KYC is complete, choose your nominee as it is mandatory to fill the Nominee details. And you’re done!

          Maximum and Minimum Investment Amount

          Maximum and Minimum Investment Amount

          The are minimum and maximum limits in investing via the RBI Retail Direct platform. The maximum and minimum Investment amount through Retail Direct Platform is as follows:

          SecurityMinimum Investment AmountMaximum Investment Amount
          T-BillsINR 10,000.The allocation of all non-competitive* bids will be limited to 5% of the total nominal amount of the issue.
          Government of India dated securitiesINR 10,000.INR 2 crore per security per auction.
          State Developments Loans (SDLs)INR 10,000.1% of the total amount per auction.
          Sovereign Gold Bonds (SGBs)One gram of gold.Upto 4 kgs of gold.
          Source: Reserve Bank of India

          *Non-competitive bid in Government securities means a bid that is offered to a retail investor at a discounted rate by the RBI.

          Limitations of Investing in RDG

          1. Compared to other investment platforms, RBI Retail Direct primarily focuses on government securities and lacks diversification. Further, there are limited short term investment options available as most govt. issued securities are of long term maturity.
          2. The minimum investment amount is INR 10,000, which can be high for individual investors.
          3. The platform relies on self-directed research and lacks comprehensive research tools.
          4. Government securities carry various market-related risks such as interest rate risk, i.e., an investor can generate lower or higher returns due to fluctuations in interest prices if they sell their investment before the maturity. However, the credit risk, i.e., loss of capital is almost nil in the govt. securities. 

          Read Also: How Interest Rate Changes Affect the Stock Market

          Conclusion

          The RBI Retail Direct Platform is a great initiative by the RBI to promote the inclusion of government securities in the portfolio of a retail investor. It is a safe and secure platform for investors looking for a investment option to directly invest in various government securities without any intermediary.

          Frequently Asked Questions (FAQ)

          1. What is the full form of the RDG scheme?

            RDG stands for Retail Direct Gilt Scheme.

          2. Mention the government securities an investor can invest in using the RDG scheme.

            Treasury Bills, Dated G-secs, State Development Loans (SDLs), etc.

          3. What is the minimum investment amount in T-bills?

            The minimum investment amount in T-bills is INR 10,000.

          4. Are govt. securities 100% safe?

            No, Govt. securities are not 100% safe; there are various market related risks such as interest rate risk if you sell your investment before maturity.

          5. Who can invest in the Retail Direct Scheme?

            Any individual in India.

          4. Open Free Demat Account

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