MONEY MULTIPLYING NEWS

THE NEW YEAR’S RESOLUTION THAT LASTS A LIFETIME — Bestow Financial Security and Peace of Mind!’

“Imagine stepping into the New Year with a protection gift— an insurance plan designed just for you, offering more flexibility than ever before. We often hear about regular guaranteed Income in insurance plans, but what if you could also get your lumpsum money back when you really need it? In India, we understand the importance of having money when you need it.

Presenting HDFC Life Click 2 Achieve Insurance Plan- A Non- Participating, Non-Linked, Savings Insurance Plan that is meant to provide you a number of options as well as a variety of flexibility to assist you determine how much and when to pay. You may now be the Defender of your dependent’s financial safety.

Plan Option – Click 2 Achieve Dream Achiever

Key Features

1. Unlimited combinations on Premium Payment Term, Life Cover, and Survival Benefits

2. Flexibility in the choice of amount and time in the Return of Premium (ROP) option choose from 0%, 50%, 75%, 100%, 125%, 150% & 200%

3. Exclusive choice for customer to choose sum assured for death benefit (life cover multiples: 7 or 10 or 12 or 15 or 20)

4. Waiver of premium benefit on Total Permanent Disability, Critical Illness or Death with additional premium

5. Option to choose up to 10% increase in income every year

6. Option to reduce your premium after 5 years

7. Option to choose money-back at regular intervals or last 5 years

LIFE INSURANCE

1. Early Income Option - How the Plan Works

Jay, is a 45 year old married professional. He needs an additional second source of income to supplement his ongoing expenses.

2. Income Variant Option - How the Plan Works

Jaya, is a 40 year old married professional. She needs an additional second source of income to supplement her ongoing expenses.

3. Moneyback Variant Option - How the Plan Works

Moneyback Combination

Receive periodical income as per your needs to achieve various milestones of life!

Now lets assume Sam has opted for the Income variant. He chooses increasing income option @ 5% with 110% return of total premiums. He also chooses to defer receiving his income by 5 years after completion of the Premium Payment Term.

In case he finds it difficult to pay the 5th premium, he can utilize his first payout in the 4th year to pay off the premiums by informing HDFC Life. So here, Sam is utilizing the Premium Offset option.

This is how it will work:

• If the date of first annual premium payment is 01/12/2023, then
• Date of first payout on the 4th year will be 01/12/2027
• Due date of 5th annual premium - 01/12/2027
• Last date of intimation by the customer to HDFC Life for premium offset - 01/11/2027

Sam chooses to accrue his second last (the 16th policy year) payout till the end of the term. This money will be accumulated monthly at a rate that is at least equal to the SBI Interest Rate on Savings Bank Deposit + 1.5%

Eligibility Criteria

“This plan isn’t just about insurance, it’s about making your money work for you when you need it. Say goodbye to one-size-fits-all plans and say hello to insurance that’s designed around your life.”

GENERAL INSURANCE

We are thrilled to introduce the latest Health Insurance Product from TATA AIG “Health Supercharge” — Designed to prioritize your well-being with comprehensive coverage and tailored benefits. This Product has been designed primarily targeting Tier III & Tier IV population.

Affordable customer segment of Teir I and Tier II Cities. Affordable Premium with New coverages & Customizable options with 2 Plans Variants , optional benefits , Cost Sharing Mechanism etc.

Please find below some key Benefits of the Plan :

• 5X Supercharge Bonus - 50% of the base Sum Insured of the expiring Policy, on each Renewal of the Policy, irrespective of claims in preceding Policy Years, maximum up to 500% of the base Sum Insured in any Policy Year ( Inbuild cover )
• Restore Infinity - Unlimited Restoration (Optional Cover)
• Advanced Cover - PED Coverage from 31 Days - for Diabetes Mellitus Type 2, Hypertension, Hyperlipidemia & Asthma (Optional Cover)
• Young Family Discount - 5% discount on premium is applicable, if all the Insured Persons covered are of age of 40 years or below at the time of first inception of the policy
• Medical Devices Cover - Cover expenses incurred towards renting or purchase of listed medical devices (Crutches/ Walking Stick / Wheel Chair / Lombo Sacral Belt/ Walker) during the Policy Year.

Highlights of the Products :-

• Sum Insured - 5/7.5/10/15/20 Lacs.
• Coverage – Only Family.
• Policy Tenure – 1/2/3 Year.
• Entry Age – Min. 18yr,Child 91 Days & Max. Adult 60 yr, Child 25yr.
• Relationships Covered – Self, spouse & upto 3 dependent children, up to 2 parents & up to 2 parent-in-laws.
• Pre-Existing Disease Waiting Period – 48 Months.
• Specific disease Waiting Period – 24 Months.

This Plan is available in 2 Variants - 1) Value Plan & 2) Geo Plan

Optional Benefits

• Restore Benefits
• Emergency Air Ambulance Cover
• Consumables benefits
• Preventive Annual Health Check-Up
• Advance Cover - (Day 31 coverage for Diabetes Mellitus Type 2, Hypertension, Hyperlipidemia & Asthma)
• Accidental Death Benefit

How much does it Cost - Few Example for Tata AIG Supercharge Plan.

FIXED INCOME

The debt market in India includes the long-term debt market and the short-term money market. Money market transactions have a maturity of less than one year, while bond market transactions have a maturity of more than one year.

The Reserve Bank of India (RBI) and plays a significant role in influencing the bond market through its monetary policy decisions and actions. The monetary policy of the Reserve Bank of India (RBI) impacts both the long and short end of the debt market. Similarly, fiscal policy decisions made by the government can also impact the bond market.

What is RBI’s Monetary policy?

Monetary policy is a policy formulated by the RBI, that deals with monetary matters in India. This policy includes the actions taken to regulate the supply of money and the cost of credit in the economy. This policy also takes care of the distribution of credit amongst the citizens along with the lending and borrowing rates. Monetary policy plays a vital role in promoting economic growth in developing countries like India.

The market interest rates and bond prices have a negative relationship. Simply put, bond prices tend to fall when the rates go up and vice versa. For instance, you hold a bond with an 8% coupon with a maturity that is seven years away. Let’s say RBI cuts the rate by 2%, here you are at an advantage because your 8% coupon rate looks attractive as the new bond issues would get 2% lower returns. A coupon is the interest payment that a bondholder receives from the date of issuance to the bond’s maturity date in the world of finance. If you hold government bonds or funds predominantly investing in government securities (gilt funds), you stand to benefit from the falling interest rate. As a result, gilt funds outperform during falling interest rate scenarios.

The impact of monetary policy on the bond market is a crucial relationship that influences bond prices and yields.

Let’s see in detail:

Interest rate and bond prices: The Reserve Bank of India (RBI), uses tools like the repo rate to influence borrowing and spending in the economy. When the RBI decreases the repo rate, it means that commercial banks can borrow money from the RBI at a lower cost. This reduction in borrowing costs often encourages banks to lend more to consumers and businesses at lower interest rates.

Bond Demand: As banks have more funds available due to cheaper borrowing from the central bank, they may seek investment opportunities. Bonds are a common investment for banks due to their relatively lower risk compared to other assets. When banks buy bonds, the demand for bonds increases in the market.

Impact on Bond prices: Increased demand for bonds leads to higher bond prices. Why? When there’s more demand for a fixed supply of bonds, their prices tend to rise. Higher bond prices mean that the yields on those bonds decrease. Yields move inversely to bond prices: when bond prices go up, yields go down, and vice versa.

Yield and investor behavior: Lower yields mean lower returns for investors. If central bank policy pushes bond yields lower, investors might seek higher returns elsewhere or take on more risk to maintain their desired level of returns. This behavior can influence their investment decisions in the bond market and other investment avenues.

Impact on borrowing and spending: Cheaper borrowing costs due to lower yields on bonds can stimulate borrowing and spending in the economy. Individuals and businesses might be more inclined to take out loans or invest in projects when borrowing costs are lower. This can have a broader impact on economic activity and growth.

Market expectations: Moreover, the bond market reacts not just to current policy changes but also to expectations of future policy moves. Anticipating future actions of the central bank can influence how investors behave in the present, affecting bond prices and yields. In summary, when the central bank, like the RBI, implements a monetary policy that reduces interest rates, it tends to stimulate demand for bonds, pushing their prices higher and yields lower.

Inflation expectations:

Inflation expectations play a significant role in shaping the dynamics of the bond market:

Let’s see in detail:

1. Inflation impact on bonds: Inflation erodes the purchasing power of money over time. When investors buy bonds, they lock in a certain interest rate for a specific period. If inflation rises during that period, the fixed interest payments from the bond may have less purchasing power in the future.
2. Expectations influence behavior: Investors don’t just consider current inflation rates but also anticipate future inflation trends. If investors expect higher future inflation rates, they’ll demand higher yields on bonds to compensate for the anticipated loss of purchasing power and higher inflation rate leads to higher interest rate to control inflation due to higher interest rate, bond prices will decrease and bond yield will increase.
3. Bond yields and inflation: When inflation expectations rise, bondholders will seek higher yields to safeguard their investment against the expected decrease in the real value of bond payments. As a result, they might sell existing bonds offering lower yields, causing their prices to drop and yields to rise.
4. Demand for new bonds: If investors expect higher inflation, they might be less inclined to buy new bonds with lower yields. To attract investors, issuers may need to increase the yields on newly issued bonds. This increase in bond yields compensates investors for the expected loss of purchasing power due to inflation.
5. Central bank response: Inflation expectations also influence central bank policies. If inflation expectations rise significantly, the central bank might respond by increasing interest rates to control inflation. This, in turn, could affect bond yields.

In summary, higher inflation expectations tend to lead to higher bond yields. Investors demand higher yields to offset the expected loss in purchasing power caused by inflation. This demand for higher yields on bonds can affect their prices and overall market dynamics. Central banks also closely monitor inflation expectations as they make decisions regarding interest rates and monetary policy, impacting bond yields in the process.

Fiscal policy impact:

Let’s dive deeper into how fiscal policy impacts the bond market:

1. Government borrowing: Fiscal policy refers to the government’s decisions regarding spending, taxation, and borrowing. When a government spends more than it earns in revenue (running a fiscal deficit), it needs to borrow money to cover the shortfall. Governments raise funds through the issuance of bonds, which are essentially loans that investors buy in exchange for periodic interest payments and the return of the principal amount at maturity.
2. Bond supply and demand: Increased government borrowing means a higher supply of bonds in the market. If the supply of bonds increases significantly due to higher government borrowing, it can potentially outpace the demand for bonds. When there’s an oversupply of bonds, prices tend to fall, and yields rise to attract buyers. Conversely, reduced government borrowing can lead to a decrease in the supply of bonds, potentially driving bond prices up and yields down.
3. Interest rates and Borrowing costs: Higher government borrowing can also put upward pressure on interest rates. When there’s increased competition for available funds (as the government competes with private borrowers), lenders may demand higher interest rates to lend money. This rise in interest rates can impact the yields on bonds, influencing their attractiveness to investors.
4. Investors confidence: The level of government debt and its ability to manage it affect investor confidence. If investors perceive that a government’s debt level is becoming unsustainable or if they doubt the government’s ability to repay its debt, they might demand higher yields on government bonds to compensate for the perceived risk. This can lead to increased bond yields.
5. Market reaction to fiscal policy changes: Anticipation of changes in fiscal policy, such as increases or decreases in government spending or taxation, can impact investor behavior. Expectations of increased government spending or larger fiscal deficits may lead to expectations of higher bond issuance, affecting bond prices and yields in the market even before the actual changes occur.
6. Central bank interaction: The central bank’s monetary policy might also react to fiscal policy decisions. If the government’s fiscal policies lead to increased borrowing and potential inflationary pressures, the central bank might adjust interest rates, affecting bond yields.

In summary, fiscal policy decisions by the government, especially those related to borrowing and spending, directly impact the bond market. Increased government borrowing typically leads to higher bond supply, which can affect bond prices and yields. Additionally, investor perceptions of government debt management and expectations of future fiscal policies also influence bond market dynamics.

MUTUAL FUNDS

WHAT ARE MUTUAL FUNDS?

A Mutual Fund scheme is a portfolio created by investing in a basket of stocks, debt securities with funds collected from several investors. Based on a team of research analysts, the fund manager decides which sector to invest in and within the sector the stocks to choose or, in the case of debt funds, the debt securities to invest in.

So, when you buy a mutual fund unit, you are essentially purchasing a portfolio of securities in a minuscule fraction of the whole. The returns you get on a mutual fund are indicated by the Net Asset Value (NAV) of the units calculated at the end of the day. The NAV moves in line with the price of the underlying securities.

WHAT ARE EXCHANGE TRADED FUNDS (ETFs)

Exchange Traded Funds (ETFs) are also Mutual Funds in the sense that the asset manager invests in a basket of securities by pooling money collected from many investors. ETFs can be based on a variety of asset classes like Equity, Debt, Gold, etc. In nature, they are a combination of the features of mutual funds and stocks. While in structure and management, they are like Mutual Funds, they can be traded like stocks on the stock exchanges.

They follow the principle of passive investing. Under this principle, the ETF mirrors a particular index and tries to replicate its performance. This is different from active investing, wherein the aim is to beat the benchmark index’s returns. ETFs are like close-ended mutual funds, wherein all the funds are raised initially, and then the ETF invests it in stocks mirroring the benchmark index with no further investments being allowed.

MUTUAL FUNDS Vs ETFs: HOW ARE THEY SIMILAR

• Both Pool Money from Multiple InvestorsOne of the similarities between Mutual Funds and ETFs is that the funds from a range of investors are pooled together and that money is put into a bunch of securities, which can be equities, debt, or a commodity like gold. Professional experts then manage this pool of money.
• Both Offer DiversificationBoth Mutual Funds and ETFs benefit from diversity because they are a bundle of various stocks. So, if one stock performs poorly, there is always a possibility of another performing well. This helps you in hedging your risks. Diversification also makes them less risky in comparison to investing in individual stocks.
• Both Follow Passive Investment StrategiesBoth ETFs and Index funds (a type of Mutual Fund) follow the passive investment strategy wherein the investments are made in securities in the same proportion as the index they follow. This means that the weightage of each constituent in the index will have the same weightage in the fund. They both aim to deliver market returns at a low cost.
• Both Provide Professional ManagementBoth ETFs and Mutual Funds are managed by experts. The aim is to replicate the benchmark’s returns in both cases. In reality, differences between the returns do exist, and experts try to minimize these differences.
• Both Have NAVsLike Mutual Funds, ETFs also have Net Asset Values calculated at the end of the day. Both derive their value from the underlying assets they invest in, and the NAV is also calculated in the same manner. In both cases, the rise and fall in the value of NAVs represent the Mutual Fund/ETF performance.

MUTUAL FUNDS Vs ETFs: HOW ARE THEY DIFFERENT

• Buying and Selling MethodThe biggest difference between a Mutual Fund and an ETF is that while Mutual Fund units are bought and sold at the closing NAV of that particular day, the units of an ETF are traded on the exchanges just like shares. The latter can be traded throughout the day, and the value at which it is traded differs during a trading day, very unlike that of mutual funds.
• Transaction Price DeterminationWhen you invest in a regular mutual fund scheme, including Index funds, you do so at a fixed NAV declared at the end of the day. You buy or sell them directly from the Mutual Fund house online or offline or through a distributor. However, since ETFs are traded on an exchange, you must buy or sell them through an authorized broker the same way you do for shares. This means that you need to have an account with a broker and a Demat account and buy and sell the ETF units just like shares are traded in the stock exchange. It also means that you can buy or sell them throughout the day at whatever the market price is, at the moment, which of course, depends on the volume of trading and demand. As the demand for the ETF exceeds its supply, the market price increases, and vice versa.
• Liquidity LevelsThere are fresh purchases and redemptions taking place in Mutual Funds. This is not the case in an ETF. Once the funds are raised, and a portfolio is created consisting of the index constituents that it follows and mirrors, there are no additional purchases or redemptions. It is then like a close-ended fund. Liquidity in the Exchange Traded Funds is through the demand for the units that are traded. This means that the more the volume of trading in ETF units, the more the entry and exit opportunities for investors.
• Number of Investment Strategies OfferedA Mutual Fund scheme can be following an active or a passive investment style. An active Mutual Fund scheme invests in many securities. The fund manager decides the proportion in which it is invested and makes tactical decisions of when to invest in a security or when to sell it. In the case of an ETF akin to a passive Mutual Fund scheme like index funds, the portfolio is constructed to replicate the underlying index and tries to replicate its performance. A regular Mutual Fund is an active fund because the fund manager can buy more or less of securities according to his/ her discretion, while an ETF is passively managed because it has to mirror the index.
• Expense RatioA very big advantage and the difference between ETFs and mutual funds is that ETF expense ratios are very low compared to actively managed mutual funds. In the Indian context, an active mutual fund could have an total expense ratio of up to 2%, while an ETF could be as low as 0.35%. Expense ratios eat into the returns of funds, so the lower the expense ratio, the better. An ETF is, of course, subject to brokerage, securities transaction tax, and other related charges. Gold ETFs are not subject to STT, however.
• Level of FlexibilityWith mutual funds, you can invest via a Systematic Investment Plan (SIP). This means that you can periodically invest a specific amount invested in a particular scheme. The same will be deducted from your bank account automatically as per your instructions. On the other hand, there is no SIP facility when it comes to ETFs. If you want a SIP in an ETF, it would have to be done manually, just like you would with stocks. You would probably fix up an investment interval and manually make sure that you invest within those intervals. No auto-debit happens, like in the case of a mutual fund SIP.

BOTTOM LINE

SHOULD YOU INVEST IN AN ETF OR MUTUAL FUND?

If you want to invest in a passive fund that follows an index but doesn’t want the hassle of opening a broker account, you would be better off investing in an index fund and making periodic additions.

On the other hand, if you want a more active role in managing your funds and want to take advantage of market fluctuations, you can opt for ETFs. A third option is to invest small amounts in both and then take it from there, depending upon returns and comfort.

At the end of the day, apart from returns, you also need to look at how easy it is to invest, whether you understand the product and your risk appetite.

Disclaimer: Bajaj Capital Limited (‘BCL’) has taken due care and caution in presenting factually correct data contained herein above. While BCL has made every effort to ensure that the information/data being provided is accurate. BCL does not guarantee the accuracy, adequacy or completeness of any data/information in the publication and the same is meant for the use of the recipient and not for circulation. Readers are advised to satisfy themselves about the merits and details of each investment scheme, before taking any investment decision. BCL shall not be held liable for any consequences, legal or otherwise, arising out of use of any such information/ data and further states that it has no financial liability whatsoever to the recipient/ readers of this publication. Neither BCL nor any of its directors/ employees/ representatives accept any liability for any direct or consequential loss arising from the use of data/ information contained in the publication or any information/ data generated from the publication. Nothing contained in this publication shall constitute or be deemed to constitute a recommendation or an invitation or solicitation for any product or services. Any dispute arising in future shall be, subject to the Court(S) at Delhi. Views given in the articles are the personal views of the contributors and not that of the company. Readers are advised to go through the respective product brochure/ offer documents before making any investment decisions. Disclaimer: The rates of interest are applicable as on the data mentioned herein above. The rate may be revised at the sole discretion of the respective companies inviting the Fixed Deposits without further notice. Printed by, Rajiv Wadehra, Published By, Raji Wadehra on behalf of Bajaj Capital Investment Centre Limited, Bajaj House, 97 Nehru Place, New Delhi - 110019, and Printed at Sundeep press C-105/2, Naraina, Industrial Area Phase - New Delhi - 110028, and Published at Bajaj House,97 Nehru Place, New Delhi - 110019, Editor-Rajiv Wadehra (CIN: U0000DL1988PLC039417))

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