ORO Weekend Reads: 20 - 25 Mar 2017

This week in ORO Weekend Reads: We go back to the basics with the different ways to invest in mutual funds. Plus how you can avoid the higher charges being levied by your bank and what google search trends can mean for your investments.

Staying on top of your personal finances was never this easy. So sit back and enjoy reading.

ORO Wealth Exclusives

Back to the basics What are the different ways in which you can invest in mutual funds

From the News

Topical, How to avoid the higher charges levied by your bank

Nearly 5 months post-demonetisation, How sticky have been the cash deposits in banks?

Look  out for these 10 most important income-tax changes that will apply from April 1

How are stocks included/excluded in the Nifty (Hint: It is not just the market cap)

Very important for financial planning in India 7 smart ways to cut down wedding costs

Around the Web

Some interesting data on  What google search trends can mean for investments

An interesting discussion on Why real estate prices have not fallen post-demonetisation

An infographic of the spectrum of financial service providers

NY Times article on How you can improve your productivity at work

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ORO Weekend Reads: 13 - 18 Mar 2017

This week in ORO Weekend Reads: Top 6 things to look for in your financial advisor, how to deal with changes in EPF and find out the winners of Morningstar Fund Awards.

Staying on top of your personal finances was never this easy. So sit back and enjoy reading.

ORO Wealth Exclusives

Revisiting an oldie but goldie Looking for a financial advisor? Make sure they are offering these 6 things

From the News 

You can now transfer your EPF money to NPS but some legal hurdles remain. But should you transfer? See some viewpoints  here and here.

More changes for the EPF as you now withdraw funds to buy a house. Key points that you need to know but again exercise this option with caution.

Do donations through mutual funds work?

How to complete your tax-related issues before March 31. A  useful read for this year and the next.

Morningstar Fund Awards 2016: The nominations and the eventual winners

Move your accounts from the post-office to your bank for convenient online access

Around the Web

A good analysis of the Distinction between good (bad) companies and good (bad) investments from the blog of Aswath Damodaran

Three good articles which do a deep-dive into the nitty gritties of mutual fund investments: Are mid-cap funds using the right benchmark indices, What to do when your fund manager quits and How did mutual funds handle (Ballarpur) debt default

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ORO Weekend Reads: 6 - 11 Feb 2017

This week in ORO Weekend Reads: A handy infographic on the 7 types of equity mutual funds in India. Plus are you aware of these 7 things in your payslip and all you need to know about Central KYC.

Staying on top of your personal finances was never this easy. So sit back and enjoy reading.

ORO Wealth Exclusives

This infographic is an easy way to find out about the 7 different types of equity mutual funds in India

For a more detailed discussion, read the first part of our 4-part article series on the 20 types of mutual funds in India and should you invest in them

From the News 

RBI leaves rates unchanged. What does the RBI decision mean for investors and borrowers?

Understand the 7 key points in your payslip for effective money management with this handy article

The focus is usually on returns, however risk is equally important. Read 3 things to keep in mind about fund volatility for a  good discussion

Use this Simple yet Powerful Mutual Fund Pre-investment checklist if you are a DIY investor or better still come to ORO!

Around the Web

Central KYC becomes the norm after Feb 1. Here is All that you need to know about Central KYC, cKYC or One KYC

Check out where India figures in this list of  The countries most and least optimistic about 2017

Less can be more when it comes to Health Insurance. Here are  2 Health Insurance Plan features that you should avoid.

Are you making use of these 12 ways to lower taxes on your salary

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7 types of equity mutal funds in India explained through an infographic

Find out about the 7 different types of equity mutual funds in India through this easy to read infographic.

For more details read the full blog.

20 types of mutual funds in India that you need to know about - Part 1

In this 4-part article series, we discuss the 20 main types of mutual funds available in India and whether you should be investing in them. The main classification of mutual funds is by asset class ( i.e. what assets they are investing in) and in part 1 of the series we discuss the different types of equity mutual funds.

Equity mutual funds - an introduction

Funds that invest in shares of different companies and other equity related instruments such as derivatives, warrants etc.. Equity fund can be further classified according to market cap, active/passive, by sectors/themes and by geography.  Also tax treatment has created another class of equity funds called ELSS (Equity-linked Savings Scheme).

You can also read about the 7 different types of equity mutual funds in India in this infographic. Click for an enlarged version.


1. Large-Cap funds:

What they invest in: Invest in shares of the largest companies on the stock exchange. Usually the top 50 stocks by market cap (shares outstanding*price) are considered large cap.

Should you be investing in them: Equities are expected to give high (double-digit) returns but can show significant ups and downs in any single year. Hence they are recommended for investors who can stay invested for an extended period of time (5+ years) and have the risk appetite to stay invested through the interim ups and downs. Among all equity funds, large cap funds are considered to be among the safest and suitable for beginner investors in equity mutual funds because (1) they are diversified so risk is spread across different industries and (2) they invest in large companies with established businesses.

2. Mid and Small-cap funds: 

What they invest in: Invest in shares of smaller companies listed on the stock exchange. Usually the next 200 stocks after large cap are considered as mid cap and the next 500 stocks are considered as small cap.

Should you be investing in them: Similar to large cap funds, these funds are recommended for investors who have high risk appetite and can stay invested for 5+ years. However Mid and small-cap funds have both higher risk and higher expected returns than Large cap funds because they invest in small companies with high growth potential. Technical way of saying this is that mid cap and small cap equities have a beta of greater than 1 to large cap equities.

Read: The different types of mutual funds in equities by capitalization for more on how large, mid and small cap funds are related to each other

3. Multi cap/Flexi cap funds:

What they invest in: Invest in shares from different cap segments. Exact proportion of investment in large cap vs mid cap vs small cap stocks in different mid cap funds should be looked up in their respective factsheets.

Should you be investing in them: Like large and small and mid cap  equity funds, these funds are also recommended for investors who have high risk appetite and can stay invested for 5+ years. Risk and expected returns lie between that of large cap and mid and small cap funds, depending on the market cap composition as mentioned in the fact sheet. While comparing multi-cap funds, it is extremely investors should not look at the returns alone but see returns in context of the cap composition that they hold.

 4. Index Funds:

What they invest in: Usually Index funds are mutual funds which passively track a benchmark index unlike active mutual funds which try to beat a benchmark by applying a strategy (Source: Investopedia). Index funds can exist in any asset class, however in India Index mutual funds are only found in the equities tracking either the large cap or mid and small cap index . You can find the exact benchmark that a particular fund is tracking by looking at its fact sheet.

Should you be investing in them: Since index funds are just passive versions of the largecap, multi cap and mid and small cap funds discussed earlier, they are also suitable for a similar kind of investor profile: high risk appetite and investment horizon of 5+ years. The big advantage of going with index funds is that they have lower costs. So if you do not believe that active mangers will outperform their benchmark (most US studies show this, though data is less clear for India), then you can opt for this low cost alternative to gain exposure to equities.

5. Sector/Thematic Funds:

What the invest in: Invest only in shares from a particular sector or theme. Some common sectors for which mutual funds are available in India include: Financial services, FMCG, Energy, Healthcare etc. Similarly common themes include PSU/MNC etc.

Should you be investing in them: As sector/thematic funds have more concentrated exposure, they are suited for investors who are bullish on that sector/theme. However sector performance is also linked to economic cycle. For instance sectors such as FMCG, Healthcare and Utilities are considered defensive because their sales react less to what is happening in the economy. On the other hand there are cyclical sectors such as Auto, Banking etc which are very tightly linked to economic conditions. So investors can also hold a bunch of sector funds (defensive or cyclical) to express their view on the economy in general rather than just a particular sector. Having said that in general these fund are not that suitable for an average retail investor who wants to get an exposure to equities. Such investors are better of with the diversified funds that we discussed earlier.

6. International Funds

What they invest in: Invest in equities of other countries. Because the fund manager has to buy the  equities of these other countries in their local currency, they need to convert INR to local currency. Hence these funds are also effectively holding the foreign currency vs. INR and will do well if the foreign currency strengthen/INR weakens.
Should you be investing in them: The requirements for buying equities anywhere remains the same: high risk appetite and long time horizon. However investors need to beware of the high expense ratios (annual % costs) of holding a mutual fund. As such investors should only look at international funds, if they already have a sufficient amount already invested in domestic equity funds. Also in such case it makes sense to opt for globally diversified international funds rather than those pertaining to  a specific country unless and untill the investor is suitably knowledgeable about individual markets.

7. ELSS (Equity-linked Savings Scheme)

What they invest in: ELSS funds are a special kind of equity fund which enjoy tax exemption under Section 80C of the Income Tax Act. Any investment in ELSS funds is tax-exempt up to a limit of 1.5 lakhs (limit is subject to other 80C investments that you already have). Further gains and maturity amount are also tax free. However unlike other equity funds, ELSS funds have a lock-in period of 3 years during which investors cannot withdraw their money.  From an investment point of view, ELSS funds are also multi-cap equity funds with a larger bias towards large-cap equities.

Read: How do ELSS funds compare with other equity funds

Should you be investing in them: You should invest in ELSS funds if you would consider investing in multicap/largecap funds. Many investors are often encouraged to invest in ELSS funds to "save taxes". However investors should remember that they have both Equity options (ELSS) and fixed return options(such as PPF) when it comes to saving taxes under 80C. And they should make the choice between them depending on the overall asset allocation they decide. ELSS/Equities have the promise of higher returns but also come with higher risk. Further even though the lock-in of ELSS funds is just 3 years as we discuss above, investors should be prepared to remain invested for at least 5 years to expect good returns.

Read: Answer these 3 questions to know whether you should be investing in ELSS

ORO Weekend Reads: 30 Jan - 4 Feb 2017

As the dust settles on the budget, this week in ORO Weekend Reads, find some of the best post-budget articles. Plus how you need to be prepared in case the taxman comes calling regarding your cash deposits and are you getting these personal financial beliefs wrong.

Staying on top of your personal finances was never this easy. So sit back and enjoy reading.

ORO Wealth Exclusives

Read about the 7 key takeaways from the budget for your personal finances.

From the Budget

Who gains and who loses with the change in income tax slabs. Find out with this useful table

9 things that get expensive/cheaper after the budget

In the 50l to 1cr income bracket? Here is how you can avoid the 10% surcharge

A good blog explaining the Changes in Long Term Capital Gains computation with new base year

Other interesting reads

Afraid of the taxman post demonetisation? Some useful reads here, here and here

Overrated vs Underrated: Personal finance beliefs we get wrong

Here are 10 investing thumb rules that are useful to know

Find out Should you opt for the Airtel Payments Bank?

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Budget 2017 - 7 Key takeaways for your personal finances


Budget 2017 was a mixed bag for retail investors. There was some cause of cheer due to no changes to equity taxation but those hoping for big income tax cuts were likely disappointed. We bring you the 7 key ways in which your personal finances will be affected:

1. No change in the equity taxation regime: A number of rumors were flying around about how LTCG may be introduced for equities and equity funds, the time period to qualify for LTCG may be increased, taxation for arbitrage funds may change etc. None of those apprehensions have materialised.
Effect: Positive

2. Income tax structure re-jigged: Tax rate for those in the income bracket of 2.5l to 5l halved from 10% to 5%. This has been partially compensated by imposing a surcharge of 10% on those whose annual income is between 50l to 1cr. Surcharge of 15% on those with income greater than 1crore continues. Further the Finance minister has also proposed a one page tax form for those with non-business income below Rs 5l. Also period for revising income tax has been reduced to12 months.
Effect: Depends on your annual income. People with annual income between 50l and 1cr will see increase in tax outgo. Those with incomes between 5l and 50l will see Rs 12,500 reduction in tax. More reduction for those in lower income brackets

3. Change in taxation regime for immovable property: Holding period for applicability of long-term capital gains tax decreased from 3 years to 2 years. Further the minister has proposed increasing the basket of instruments in which you can invest your gains from property to avoid capital tax.
Effect: Positive.  Intent of the Government also seems to be to encourage move from real assets to financial assets by making sale of real assets less taxing.
4. Impact of macro-economic announcements on markets and your investments: FM has proposed a fiscal deficit target of 3.2% of GDP for 2017-18 which was better than market expectations. Further the quality of the fiscal deficit has improved with focus on capital expenditure in rural areas and infrastructure. As a result, bond yields have come down benefiting holders of long-term bonds and debt funds. Equity markets should also respond positively to this. 
Effect: Positive.

5. Corporate tax rate reduced for MSMEs: Corporate tax rate applicable to companies with annual turnover<50 cr reduced to 25% from 30%.
Effect: Positive for small business owners

6. Cash transactions above Rs 3 lakhs to be banned: beginning April 1 2017
Effect: Positive for honest tax payers 

7. No major announcements on NPS but limits enhanced: The limit of amount to be contributed to NPS has been enhanced to 20% of the salary of an employee from earlier 10%. The same is applicable from April 1, 2018.

ORO Weekend Reads: 23 - 28 Jan 2017

This week in ORO Weekend Reads: We googled for the best ELSS mutual funds and were surprised to see the results. Plus how should you prepare for a change in equity mutual fund taxation and how you can benefit from hedonic adaptation (ya even we had no clue what that meant!).

Staying on top of your personal finances was never this easy. So sit back and enjoy reading.

ORO Wealth Exclusives

We googled for the best ELSS funds and were surprised to see the results. Find out why

From the News 

The cabinet approves the Varishta Pension Bima Yojna with 8% guaranteed pension: Things you need to know

Equity taxation rules are expected to change. What should you do?

Returns are expectations but costs are reality. So pay attention to costs these 6 cost-effective investments for a healthy portfolio

A good article investigating How easy it is to get your free annual credit report

Are you aware of Your Financial rights?

A step-by-step guide on how NRIs can exchange old notes till June 30

Around the Web

Living within your means does not have to be stressful. Read about The Magic of Hedonic Adaptation

A comprehensive read on How you can save taxes by setting-off capital losses

How the National Pension Scheme saves tax. Find out all the basics here

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We googled for the best ELSS funds and were surprised to see the results


This is the tax-saving season. And for those of you who have decided to invest in ELSS funds, the single most important question right now is “Which is the best ELSS fund to invest in”.  Google search is often the go-to place for ELSS investors to get answer to this question. So we at ORO decided to do a poll of Google search results to find out which ELSS funds are being recommended right now. And there were some surprising results.

For all the collective obsession with picking the best fund, there is so much overlap within the recommendations, that we can actually go down to 2 recommended funds (Make that 4 if you want to be more lenient).  There is no secret sauce and everybody in the industry is using very similar criteria to shortlist funds.

We think that this has important implications for investors. But all that for later. First the results.

Methodology …

So here is what we did: We searched for 2 popular ELSS related terms on Google “best elss funds 2017” and “best elss mutual funds 2017” and went through all the results that appeared on the Google first page. We did not bother with the search results on the second page, since more than 90% of searchers don’t go beyond the first page anyway (Source). We considered both search results and ads. The only results that were ignored were those from mutual funds companies for obvious reasons.

There was considerable overlap in the results for the two search terms and in total we came up with 14 recommendation pages. (You can see the full list at the end of the article). We then gave each page a weight of 1 and its weight was split evenly between all the recommended funds on that page. So since there were 14 results, therefore the total weight was 14. Further if one page had 5 funds recommendations, then each fund was given a 1/5 weight. This was done because if a source is recommending only one fund, then that shows greater conviction in the recommendation vs. a source which is recommending 10 funds.

…and Results

And at the end of it all, these were the results (*drum rolls*).

The"best ELSS mutual funds" adjudged from Google Search

The two ELSS funds which come right at the top in our analysis are Axis Long Term Equity Fund and DSP Blackrock Tax Saver Fund. And if you were looking to invest in more than two funds, then perhaps you could consider Franklin India Taxshield and Birla Sun Life Tax Relief '96 as close seconds.

Surprising consistency in Results – there is no secret sauce!

The most surprising thing about these results is the high degree of overlap between the recommended funds from these different sources. But should we be surprised?

We found that almost all sources relied on the following 5 kinds of indicators for coming up with best ELSS funds:

1. Age of the fund: To weed out funds which have a small track record
2. Assets under Management: To only consider the larger funds which are believed to be more liquid for investors to exit and have lower unit costs
3. Performance: measured over different horizons to select funds with good track record
4. Consistency of performance: Has the fund outperformed its benchmark and its peer funds consistently or is the good performance a one-off
5. Risk and Risk-adjusted returns: Has the fund been able to deliver this outperformance without taking too much risk. Risk-adjusted returns is the ratio of returns to risk and was measured through a number of well-known ratios such as Sharpe, Calmar etc.

And that’s it. Yes each of the sources may have measured these parameters in slightly different ways. For instance, some kept the cut-off age for funds at 5 years and others at 6 but at the end of the day these differences were quite minor and they converged on the same set of funds.

Did you know “best mutual fund to invest in” is the most searched term related to mutual funds in India? But the biggest result of this analysis that there is no secret method for coming up with such funds. There are a few common sense criteria and almost everybody in the industry knows them and uses them. And further all these criteria are numbers-based and rely on past performance, so anybody can calculate them and come up with this list!

The straightforward investment implication

If there is no special mystery in coming up with a list of good ELSS funds to invest in - you can run your own set of numbers on a spreadsheet or simply google recommendations like this – then the best thing for investors to just invest in these funds with the lowest possible costs. After all once you have a shortlist of good funds, lower costs directly translate into higher returns.

And the lowest cost method of investing in mutual funds is through direct plans. The table below shows how much you could save in each of these funds by just opting for a direct plan instead of regular plans.

Commissions in ELSS funds

*For Tata India Tax saving Fund, actual data is only available from Oct 2014. This has been extrapolated back to Dec 2013

So ELSS investors, the investment implication is clear for you – pick a fund you like from this list and go direct!

Read more: Invest in direct mutual funds for high returns

More philosophical investment implications

Disclaimer: If you are tired of reading till this point, you can totally skip this section.

At ORO we do not believe that selecting the best mutual fund is the most important role of an advisor.Yet many investors are often led to believe by their advisors that this is the most important thing in investing. Hence this is all they should expect of their advisor and if the advisor has recommended them good funds, then he/she deserves to be paid commissions year after year after year.

Read more: Make sure your financial advisor is offering these 6 things

What this analysis does is bust this myth around mutual fund selection. There is nothing special in coming up with a list of good mutual funds to invest in. It can be done on the basis of a set of purely quantitative (i.e. jargon for numbers-based) critera. Some people claim that they look at qualitative (i.e. jargon for 'I know more about the mutual fund industry than you') criteria but we hardly find evidence of that making a difference.

And you know what? When something is so numbers-based, it is better done by a computer. And the good thing about technology is that if something can be automated, then it can be made available cheaply for everybody without compromising on quality. That is why we at ORO provide our top mutual fund recommendations for free. And you should also stop paying your hard-earned money to an advisor whose only value-add to you is selecting mutual funds.

Appendix: List of included sources


ORO Weekend Reads: 16 - 21 Jan 2017

This week in ORO Weekend Reads: Understand how debt funds work, find out your financial personality and see how you can use mini-games for financial and personal improvement. All this and more personal finance insights compiled in one newsletter.

ORO Wealth Exclusives

We answer a common investor query on How debt funds can give high returns when they are holding bonds which give fixed interest. Make sure you also read about the risks involved.

From the News 

With interest rates coming down, home loans are the flavor of the season. Here is a step-by-step guide to all things related to home loans.

See  these 8 steps to building your financial plan. Also read 9 questions to ask before investing (Hint: costs)

Holding multiple mutual fund schemes does not diversify your portfolio

A good list of Options available to NRIs to benefit from the 80C tax deduction

Check out these 5 ways in which the Union Budget may affect your personal finances

Around the Web

What is your financial personality type? Check out this article to find out

An article you are not likely to come across very often in personal finance, When is it ok to reduce saving and start spending

How you can use mini-games for financial and personal improvement

Compounding is the most powerful force in the universe but difficult for us to comprehend. May the force be with you!

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Q. How is it possible for debt funds to give high returns when they are holding bonds which give them fixed returns of 8-10%?


Bonds have two sources of returns, regular interest income and capital gains. It is the second component which is responsible for high returns. To go into each of the components in detail:

1. Regular interest income: Every bond has a coupon rate (which is a % of its face value) so say 8%. Coupon rate* Face value of the bond reflects the regular interest that the bond will pay you every year/every 6 months (depending on the terms.) If you hold a bond to maturity then this is the only income you will get.

2. Capital gains/loss: This is the gain (loss) that you make if market interest rates go down (up) relative to the interest rate at which you bought the bond. Say, you bought a bond which was paying 8% interest on the amount you paid for it. Now the market interest rate has become 6%. Automatically your bond has become more valuable and the price goes up to reflect that. Similarly when if the market interest becomes higher than 8%, bond price will fall.The sensitivity of bond prices to interest rate movements depends on their time to maturity: more the time to maturity, more sensitive is the bond price.

To get an intuitive sense of how bond prices move, Read: Understanding bonds and debt funds through a simple comparison with FDs

Now when we come to the different types of debt funds, these are usually classified according to the average maturity of bonds they are holding.  So on the one hand you have liquid funds which invest in securities whose remain maturity is less than 91days while the other end of the spectrum you have log-term bond fund which may hold bonds with 7-10 years to maturity. Just like the underlying bonds they hold these debt funds also have two sources of returns.

First is the regular interest income. However since debt funds are perpetually holding bonds (i.e. once the bonds mature or are no longer in the mandate of the debt fund, they will sell these bonds and buy new ones), therefore the regular interest income of the bond fund should be very close to the average market interest rate prevailing in the markets for that maturity. This component is more or less fixed and is known in advance.

Second is the capital gain component. Capital gains component is almost negligible for liquid funds which hold instruments with very little time to maturity but becomes progressively more important as we go into debt fund categories which have more time to maturity, such as medium and long-term debt funds. These are the categories where you are likely to see double digit returns if interest rates come down. The downside is that debt funds with long time to maturity can also give negative returns if interest rates go up.

ORO Weekend Reads: 9 - 14 Jan 2017

This week in ORO Weekend Reads: Understand the risks and returns in different types of equity mutual funds, find out what you can do even if you have missed the deadline for tax-saving investment declaration and how you can budget for quitting your day job traveling around the world.

Get ready to immerse yourself in the best stories from personal finance this week.

ORO Wealth Exclusives

We revisit an old blog post which remains quite relevant Understanding the different types of mutual funds in equities

From the News 

Have you missed the deadline for tax saving investment declaration? Don't worry Here is what you can do

All that you need to know about the Further Fund Offer of CPSE ETF. Also see here

You can now get your detailed credit report for free every year. Find out how.
These mutual fund houses accept investments from US and Canada-based NRIs

In this tax season, here is  All about the taxability of investments in a minor child's name

Further news on Payment Banks, Airtel reveals cash withdrawal charges, As Paytm becomes a bank what happens to money in your wallet

Around the Web

Budgets can be sexy. See their post on, How to make a budget for world travel

A new design of the PAN card will be in effect from Jan 1 2017

HDFC Bank checks for creditworthiness by reading user emails. But also see some good news from them HDFC Bank offers facility to pay bills using missed call

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ORO Weekend Reads: 2 - 7 Jan 2017


Happy New Year! In the first edition of ORO Weekend Reads this year: You need to see to believe the difference in performance between direct and regular mutual funds in 2017. Plus how should invest post the Government's decision to leave PPF rates unchanged, Should you be switching your home loan and some handy investment tips and tools for 2017.

Begin 2017 with ORO Weekend Reads. Stay informed, Stay invested, Stay prosperous.

ORO Wealth Exclusives

The Government has left interest on Small Savings Schemes unchanged  What does this mean for your portfolio?


On Direct Plans

You need to see the difference to believe it Performance comparison of direct mutual funds vs. regular mutual funds

Zero commissions in your mutual fund statement does not mean you have not paid commissions! Always make sure your mutual fund name says 'Direct Plan'



From the News 

Banks announce a big cut in home loan rates. A detailed discussion of the impact on those with home loans

Handy tips and tools for investing in 2017: 10 smart money moves and a Financial Calendar for 2017

A step-by-step guide on downloading and using the BHIM App

Interesting charts on the impact of Trump vs. Demonetisation on Indian Equity Markets



Around the Web

Not something you may come across very often,  Who should not invest in equities

You may be spending too much time saving if you are guilty of these 5 money-saving hacks which are a huge waste of time. 

Not finance but definitely useful for your career, How to write a good email introduction

Hope you enjoyed reading! If you did not receive this newsletter via email, then start one good habit in 2017. Subscribe to our newsletter to receive it directly in your inbox every week.

Small savings schemes interest rates Jan-Mar 2017 kept unchanged

Recently interest rates have come down after demonetization, as supply of funds in the system has increased an people are expecting a central bank rate cut. Major banks  have cut FD rates. However the Government has left interest rates on small savings schemes unchanged increasing their attractiveness for those looking for safe places to park their money.

A table of of how interest rates on these schemes have evolved since April 1 2016 when they were first linked to G-sec yields on a quarterly basis. Over this period interest rates have been falling due to central bank rates cuts. As a result interest rates on small saving schemes have also been coming down albeit slowly.

Source: Press Releases, GOI - March 2016 and June 2016, DEA Website  

For a background on how interest rates on these schemes are set, check out the last paragraph.


Implications for your investments

The fact that interest rates on these schemes have not come down even as banks have cut FD rates now makes these schemes more attractive for those looking to park their money in guaranteed return, safe investments.

However  a few things need to be kept in mind:

1. While the rates offered on Post Office Schemes, Senior Citizen Savings Scheme and National Savings Certificate can be locked today for the entire tenure of these schemes. In the case of PPF and Sukanya Samriddhi Yojana will keep getting revised. Hence if interest rates in the economy keep going down, then rates on these two schemes will also eventually be revised lower. However, given the popularity of these schemes among retail investors we can with some safety assume, that the set rates will remain above market rates.

2. While the returns are guaranteed, they are not very high - probably just about sufficient to beat inflation but not by much. Hence investors cannot rely on these instruments to build wealth. Also the lock-in periods for some of the most attractive schemes are quite high: PPF -15years, Sukanya Samriddhi - 21 years etc.
Investors who think that interest rates will come down can do better with debt funds over a shorter horizon. Investors who are willing to commit funds for long periods, say 7+ years can expect higher returns from equity funds.

For a full list of how you can invest your money (for different risk/return preferences) with FD rates coming down, read: Top 10 investment ideas to beat low FD rates


Background on how interest rates on small saving schemes are set

Effective from April 1 2016, the Government had linked the interest rates on various small savings scheme to market interest rates. Small Savings schemes include the likes of Public Provident Fund, Sukanya Samriddhi Scheme, Senior Citizen Savings Scheme, National Savings Certificate, Post Office Monthly Income Scheme etc. This was done according to the recommendations of the Shyamala Gopinath Committee to ensure that banks are able to change their interest rates in line with the current market rates. The thought is that if  thereby enabling them to pass on central bank rate cuts, as and when they happen, effectively to borrowers.

As a result instead of being reset every year, interest rates on these schemes were to be revised every quarter based on Government bond yields (on comparable maturity) over the previous 3 months. This formula allowed for a certain spread or markup over G-sec yields: The markup for PPF, National Savings Certificate, Monthly Income Scheme and 5yr time deposit was 0.25%, for Sukanya Samriddhi Scheme it was 0.75% and 1% for Senior Citizen Savings Scheme. What this meant was that if the applicable G-sec yield over a certain period was adjudged to be 8%, then interest rate on PPF would be 8.25% .

ORO Weekend Reads: 26 - 31 Dec 2016


As we bid adieu to 2016, welcome to the year-end edition of ORO Weekend Reads. In this week's list: 2016 explained in graphics,  How do ELSS funds compare with other equity funds and find out your money score for 2016. Plus 25 incredible free sites and services that you should know about.

Begin 2017 with ORO Weekend Reads. Stay informed, Stay invested, Stay prosperous.

ORO Wealth Exclusives

With ELSS funds the focus is always on tax saving but what about pre-tax returns? ORO investigates how do ELSS funds compare with other equity funds?


From the News 

Pension options saw a flurry of changes in 2016. Check out the changes here. Also read  why you need to  Invest in EPF and NPS both rather than just in one

More encouragement to invest in NPS, NPS outshines MFs and benchmarks in 2016 and Investing in NPS is now completely online via Aadhar

What the Real Estate Act (2016) is about? A short but comprehensive discussion of what to expect.

A good checklist of how to keep you finances in order, What is your money score for 2016?

How you can obtain proofs for the various tax-saving investments/expenditures

Find out how India earns and spends with this LiveMint series based on the ICE 360' survey



Around the Web

2016 explained  in 129 graphics

Find out if you can retire today with this Retirement Calculator. But also read this more philosophical take on Why financial independence is not the holy grail

The Government's payment app, BHIM is here. Read more about it. 

And because saving is the beginning of investing, here are 25 incredibly useful free sites and services

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