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Safe Money

Liquid and Ultra-Short-Term (UST) mutual fund schemes have given average returns of over 9% in 2013-14. The average of the top five liquid and UST schemes in the past five years comes to

around 8% annually. While experts recommend these schemes only for the short term, we examine whether it really makes sense to remain invested for over one year, to reap the benefit of indexation. Missing the tax benefit is like missing the main advantage of investing in these schemes. We explode some of the myths that no one has dared to. Our argument is supported with data that demonstrates that traditionally accepted arguments may not hold in every case. What benefits you is more important than what helps mutual fund companies and in our Cover Story we debunk the myths so that your investments stay safe, growing in line with rational expectations, and with an eye on tax savings.

On the subject of mutual funds, monthly income plans (MIPs) are promoted by fund houses as a regular income product which can derive advantage from investment in equities to generate higher returns. We have always held that MIP is a flawed product. Over the past year, when the market has rallied substantially, how have MIPs fared? Turn to our Fund Pointer section to find out.

In her Crosshairs section, Sucheta writes on the initiatives taken by the Narendra Modi government. The new government has the tough task of meeting sky-high public expectations with very little maneuverability. The new government has set up a special investigation team to track black money. The government has also taken up the much-needed tax and law reforms. With these efforts, the prime minister is set to deliver on his election promise of good governance and rule of law. Failing to act decisively will irreparably damage the ruling party’s credibility.  
Facing consumer issues? Moneylife Foundation is planning an exclusive event on 21st June on how cases can be presented in consumer courts. For more details, and to register for the event, visit


Are mutual funds satisfactory?

I have gone through the article titled “MF Utilities: How would it benefit investors?” (issue dated 29 May 2014) and also “Go for Bank FD or RD?” Both are written very cogently and have a convincing approach.

I have been purchasing MFs (mutual funds) from different asset management companies (AMCs); at the same time, I have kept some amounts in nationalised banks in the form of fixed deposits (FDs). From banks, I get assured rate of interest with return of the principal amount. However, in case of MFs, my experience is not good. Although MFs give non-taxable dividend every year, their yield is around 8 % approximately. It’s ok; as I know it involves market risk.

My main problem is with MFs at the time of redemption; the redemption value is very poor and, hence, discouraging. Against Rs1 lakh invested by me with a reputed AMC, I was given only Rs67,000/-. After taking into account the yearly dividend and, tax rebate, there is a net loss. They quote the NAV factor every time.

 When I took up the case with the AMC, I received no satisfactory reply. As an investor, the least I expected was no loss on MFs, since the Sensex has been going up. Finally, I withdrew a dozen MFs and kept the amount in FD.

Why are MFs not giving a minimum return of around 8%-9% return with the invested principal amount? It is better to pay tax on bank FD interest but I don’t think of FD as investment.

Bhaurao L Hedaoo, by email


Questioning Elders is Taboo?

T his is with regard to “Financial Parenting” by R Balakrishnan. One can only pass on what one has. Do we have enough financial knowledge to make efficient use of the financial resources that we have? If not, are we spending enough time on financial matters to improve our knowledge?

In a society where questioning the elders is taboo and following them blindly is a ‘virtue’, can we expect better guidance or thought process from parents?

The basic question that can help change mindsets is: If all the people are smart with their financial choices, then why only 1%-2 % of the country’s population is rich? Arriving at an answer for this question may not be comfortable. But it is very important in improving our own lives and in adding value to the wealth of future generations come.

Chilukuri KRL Rao, online comment


Though Rajnath Singh had a Herculean task, now at last Prometheus is unbound. Three cheers to Indian democracy! Yet, Prometheus shall have to be very careful. The seasoned and much tried liver may still need special attention and cures.

Rhea is still alive. Poseidon and Pluto had their shares. But there are greedy vultures hovering around. Hera is very active—thank God—already married!

Ceres, Led, Danae and many more have been hopeful aspirants. Who can say that Zeus won’t send another Pandora! That Zeus is almost reduced to a statue may comfort us for the time being, though not sure of where and when it is going to be destroyed.

Till then, the worship would continue. I wish, and strongly believe too, that the mother (Earth) and the bride (Asia) would save Prometheus and bring back ‘Ram Rajya’, when man remains equal, un-classed, tribe-less, nation-less, king over himself, just gentle and wise.

“May the Promethean fire” save Indians and Indian democracy from the curse of dynastic rule!

Prof MK Rajagopalan by email


While an ordinary resident Indian is taxed on his hard-earned savings on his gross income. minus the rebates allowed, an NRI (non-resident Indian) enjoys tax-free interest of 9%+.  NRE (non-resident external) deposits have more than trebled since these deposits started earning tax-free interest at or more than domestic rate of interest.

What an irony of fate—not being an NRI!

Whatever may be the compulsions to encourage NRI deposits, it should not be at the cost exchequer nor at the cost of (or disadvantage to) the resident Indians. All investments in bank deposits, stock markets, etc, should get equal treatment in regard to taxation.

Due consideration should be given by the new government, the new FM (finance minister) and the finance ministry, while presenting this year’s Budget proposals. The middle-class and the lower-middle-class resident Indians would always like to put their money in bank deposits. This is because many investors lost money when they invested in the stock market or mutual funds during the past four-five years.

RG Nakhate, by website feedback


This is with regard to “The Bull Rule: Your key to market-timing” by Debashis Basu and Jason Monteiro. This is a very informative article, indeed! Similar to P/E ratio, are any other parameters (like debt to equity ratio, ROE, ROCE, cash-flow for whole index) available for the Sensex/Nifty on BSE’s or NSE’s website? I was wondering if we could use these other parameters, along with P/E, to evaluate individual stocks.

Sandesh Jawale, online comment

Jason Monteiro replies:
As of now, only PE ratio and dividend yield are available on BSE’s and NSE’s websites.


This is with regard to “Level-playing Field for Government Banks?” by Sucheta Dalal. The need to run the PSBs (public sector banks) on professional lines cannot be overstated as the government cannot afford to carry the burden of running such rotten institutions with taxpayers’ money and with other attendant implications on its finances and the economy.

The way these banks are run, allowing borrowers to loot perennially the depositors’ and taxpayers’ money with the backing of the government, cannot go on forever.

Time has come to have a re-look and revamp the banks to make them really the powerful engines of growth of the economy. The model suggested in the report on par with Temasek in Singapore or the UK government’s UK Financial Investments  can be easily replicated. What the economy needs is that banks play their role of mobilisation of deposits and deploy funds for equitable growth of the economy under proper regulation and supervision by a professional body without any interference from the government whatsoever, accountable only to Parliament.

The government and the economy should be the beneficiaries of such banks and not the other way round. No doubt, the unions will have to be taken into confidence and their interest cannot be jettisoned. The need to have professional Boards, effective constructive regulation and supervision is paramount. Hope the new government would take this report seriously and implement the recommendations in letter and spirit. More than any one, the government would be the major beneficiary is also the moot point.

TV Gopalakrishnan, online comment


This is with regard to “Narendra Modi takes the charge with 44 ministers.” The master stroke was inviting SAARC leaders. It augurs well.

SSA Zaidi


This is with regard to “For Indian investors, kyaa achche din aanewaale hain…?” by Sucheta Dalal.

Well said; I hope the new government is reading this. Also consider this: While foreign provident funds, like Calpers, would trust our markets to invest for the long term, Indian provident funds are too scared, although they are allowed to invest 5% of their corpus. How foolish of them not to have invested during the past two bear market phases (when everybody was crying), reaped huge benefits and made the funds more secure. They could then have, maybe, given a higher interest rate. Just goes to show that government officials don’t understand markets.

Mohan Sivanand


This is with regard to “ and Qnet’s other websites blocked on court order”. I have been duped recently by my close relatives into joining QNET and they still do not believe this is a scam. I went to V-CON 2014 which was all rubbish, like the darbar of babas in India.

I am demanding my money and tour cost back. Let’s see whether they return it to me, as per their promise.

Manish Sarraf



Joseph Fernandes

3 years ago

Dear RG Nakhate, good you said of equal treatment about taxation because probably only FD's are not taxed but for the past some years from somewhere in 2007 NRE deposits were fetching 2% or 3%. What about rates of brokerage to NRI's, one time cost, tax deduction at source and yes there are many NRI's who are middle class and lower class without their families with them.

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