How safe of an investment are mutual funds?
Question by treefrog: How safe of an investment are mutual funds?
I’m trying to educate myself, a bit. I will be getting a fair chunk of money soon, and I wanna know how to keep from squandering it….and hopefully, earning a bit to boot.
Best answer:
Answer by puppetman
Mutual funds are an excellent choice. There are different types;
Index funds: These try to match the ups and downs of the stock market. They outperform about 80% of the mutual funds.
Growth funds: Higher risk in lesser known companies that are expected to do well.
Bond funds: Very low risk.
Go to www.fidelity.com for lots of information. Just don’t dump all of your money into one type of mutual fund, especially at one time.
What do you think? Answer below!
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Bond funds: Why they’re risky — and why they’re safe | Business Agenda
Bond funds: Why they’re risky — and why they’re safe | Business Agenda
MinnPost.com Full RSS Articles brought to you by: The Deets Startups Create New Jobs. Not MNForward’s Corporate Donors. Visit Website Bond funds: Why they’re risky — and why they’re safe By Mark Trumbull, Christian Science Monitor | Wednesday, Aug. 25 The rush into bond funds amplifies a trend that’s been largely in place since the financial crisis began, but are people playing it safe or …
Read more on MinnPost
Safe Mutual Fund
Mutual Fund guaranteed (MFG), also called “formula funds” belong to the family of Undertakings for Collective Investment in Transferable Securities. Unlike conventional mutual fund, Mutual fund guaranteed (MFG) to provide their subscribers a partial guarantee of returns on total capital invested.
Definition of Mutual Funds guaranteed (MFG)
The MFG is a mutual fund guaranteed that provides the subscriber to recover partially or fully their invested capital. MFG is also called “formula funds” because it also allows the investor to benefit from the performance of a benchmark index (an index of shares) and the performance is calculated using a mathematical formula. Thus, the MFG is a sort of guaranteed return of capital invested (like bonds and bank deposits) but giving much better returns. The principal amount is guaranteed while the risk (doubt) is only on the interest portion.
Classification of Mutual Funds guaranteed
There are 2 types of Mutual Fund guaranteed:
The Mutual fund guaranteed standard whose main objective is to provide certainty to investors that they will be able to recover all or part of their invested, while enjoying the performance of a benchmark index which will decide their rate of return.
Let us see an Example:
A mutual fund guaranteed that on maturity after 5 years, the cash-in to the investors will be 100% of the capital originally invested (Principal amount) plus 70% of the principal will be increased by 40% increased till maturity. .
The Mutual Fund guaranteed allows for fixed maturities and allows benefit to investors from the performance of an index or the performance achieved by the investment fund on that date.
Let us see an Example:
A mutual fund guaranteed that on maturity of 4 years, the cash-in to the investors will be 100 % of the capital originally invested and 100 % of the higher asset values calculated at each end of the year.
Period form investment
N+1
N+2
N+3
N+4
Asset value of investment (100%) at the end of the period
105%
95%
120%
115%
From the above table we can see that the value of asset (investment) at the end of first year was 105%, at the end of second year there was loss and asset valuation was 95%, at the end of third and fourth year the asset valuation was 120% and 115% respectively. At the end of four years, the investor will be reimbursed on basis of best of returns achieved in all of four years, corresponding to the period of best performance, ie 120%.
How a Mutual Fund guaranteed
The modus operandi of investing in Mutual Funds Guaranteed is similar to that of ETF funds and mutual funds.
Interest on Investment in Mutual Fund guaranteed
Unlike a conventional mutual fund, a mutual fund guaranteed allows the investor to secure all or part of its capital and / or to receive a portion of the performance (positive ) realized by the fund.
Restrictions on investment in mutual funds guaranteed
Investing in a mutual fund guaranteed has some drawbacks for the investors:
The principal portion of the investment which has is a secure portion of the investment has the liquidity.
When stock markets perform well, investors who has invested in Mutual Fund Guaranteed schemes may not get the as good returns as their counterpart mutual funds. This is because the mutual fund Manager has a freedom to invest the principal on more speculative stocks in expectation of better returns. But Mutual Fund guaranteed fund Manager will like to invest only in less risky investment options.
When the investor wants to buy its units before the maturity period, the guarantee clause is no more valid and and additional charges becomes applicable.
Taxation of Mutual Fund ( CPF ) guaranteed
Taxation in mutual fund guaranteed will be similar to debt linked mutual funds. Most capital gains are subject to income tax and social security contributions.
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Categories: buy mutual fund Tags: Fund, Mutual, safe
how safe is to invest in mutual funds?
i want to invest 10 lacs in mutual funds and want
to double my money in 2 years or 4 times in 5
years.is it possible through mutual funds?
Categories: invest in mutual funds Tags: Funds, invest, Mutual, safe
High Yield Safe Investments
Where does a person go to satisfy their desire for a safe investment with a reasonably high-yield? Looking through the best search engines on the web doesn’t offer much of an answer.
You will likely find several investment offerings ranging from tax liens to real estate funds yielding 12% or more that are commonly solicited. The fine print likely suggests that the investor bears all risk associated with such offerings. So much for safety!
If you want true safety, you really are stuck with government notes, certificates of deposits etc. As of this writing, five-year yields for treasury bills are under 2% and CDs average around 3%. For safety these days, high-yields go out the window as well.
Many investors who either need a place to stuff cash or need to ditch the volatility of the current markets are having a hard time finding the best of both worlds: a high-yield safe investment.
Would the safety of a CD with the yield of a mutual fund fit the description? I think it’s a lot closer than anything else you’ll find. A great solution comes in the form of a fixed annuity from a highly rated insurance company could be your best bet.
Insurance companies essentially operate the same way as banks with one major exception. They get preferential corporate tax treatment. A lower corporate tax bill is one reason insurance companies can offer better rates of returns than commercial banks.
Insurance contracts, such as fixed annuities, offer competitive rates and tax deferral while giving up almost nothing along the lines of safety. Financially strong companies have very small leverage ratios in comparison to banks so they have much lower default risk than banks. Also, guaranty funds back deposits up to $100,000 in most states.
Returns in these contracts can exceed 5% in many cases with companies that have superior financial strength. Ad to that the fact that annuities enable investors to defer taxes and have the interest compound over time. Refer to the Annuity vs. CD article section for detailed comparison of these two products.
Also remember, to reach comparable safety with government backed notes of any kind, it is essential that you place your business with only the best financial institutions. Credit ratings for financial institutions are a critical indicator but don’t stop there. Press releases for all the major players in this industry will show which ones have continued to perform recently and which ones have not. Some insurance companies have posted record results through 2008 and are positioned well to maintain strength and profitability during the current recession. A little homework will reveal the companies that deserve business and will help you sleep at night.
Annuities are not for everyone. Timing is a key deciding factor. Also, when you decide to take that step, the selection of the right product deserves much diligence. Annuity Straight Talk is available to answer questions and eliminate the guesswork that goes along with such an important decision.
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Categories: high yield mutual funds Tags: High, Investments, safe, Yield
Feel Safe About These Funds
Don Phillips, managing director at mutual fund tracker Morningstar, says mutual funds remain the safest investing vehicle despite what your latest statement may reflect. Check out his top two stock and bond fund picks.
PENNYWISE AND PLAYING SAFE
The microfinance sector is clearly one of the fastest growing segments of the Indian financial sector, and also one where such growth is sustainable for a very long period of time. In spite of a large banking sector, about 40% of the Indian population does not have bank accounts. Given that over 75% of the Indian population still lives below $2 a day, and a vast majority in rural areas, microfinance – the provision of thrift savings, credit and other financial products and services at a very scale to the poor to enable them to raise their income and improve living standards – is key to financial inclusion in India. Traditionally, micro-credit in India has been the domain of village money-lenders, generally at exploitative interest rates that impoverished borrowers.
While special emphasis oh rural and small loans have existed in India at least since the 1960s and India’s apex specialized rural credit agency, the National Bank for Agricultural and Rural Development (NABARD) was established in 1982, microfinance in India has witnessed a dramatic increase in recent years with the involvement a large number of private players in addition to the government. Providers of microfinance in India today include specialized country-level institutions like NABARD, the Small Industrial Development Bank of India (SIDBI) and that Rashtriya Manila Kosh (RMK); commercial banks – both private and state-owned; regional rural banks; cooperative banks as well as non-banking financial companies (NBFCs). While non-profits (NGOs) have often played a key role in the formation of microfinance institutions (MFIs), the contribution of governmental thrust in scaling microfinance (largely through the self-help group model) has, at the end of the day, reached a far higher number of people. Of late, with the realization of the profit opportunities in the sectors and the spectacular growth in the past half decade, microfinance in India is beginning to attract for-profit funding from commercial banks as well as from venture capital firms, both domestic and foreign.
Though microfinance in India, as in most other places, is generally lauded as the success of private enterprise, the role of the government in scaling and mainstreaming microfinance cannot be overlooked in India, particularly in the SHG Bank Linkage Program. In 2000, two-thirds of SHGs in India were promoted by NGOs. Now around half of them are promoted by government, less then third are promoted by NGOs and rest by banks. SEWA, one of the pioneers of microfinance in India took 35 years to reach membership of 0.8 million women, but in contrast the government of the Southern state of Andhra Pradesh took 15 years to mobilize 8 million women. The Swarnajayanti Gram Swarojgar Yojana (SGSY), perhaps the biggest government program promoting SHGs anywhere in the world was launched in 1997, and generated over 0.34 million SHG loan applications in 2006-07 alone.
Outreach and recent growth
The Self-Help Group (SHG) model of group-lending and linking of such groups (almost always of women) to banks has been the predominant model of microfinance in India connecting about 14 million poor households to banks in March 2006 and providing indirect banking access to an equal number. Loans from micro-financial institutions (MFIs) have reached about 7.3 million households among which about 45% are poor. Together these two models appear to have touched about a quarter of the Indian poor.
The SHG Bank Linkage Program (SBLP) – dominant microfinance model in India – had, in March 2006, an average loan size of Rs 2,684 ($67.1) for fresh loans and Rs 4,497 ($112.42) for repeat loans per group member with average group size of 14 members. In the five years from 2001 to 2006 outreach and loan volume in this model had witnessed close to nine-fold increases. While the quantity of bank loan disbursed shot up from Rs 48 crores ($ 120.25 million) to Rs 4, 499 crores ($ 1.12 billion), outreach expanded from 0.26 million to 2.2 million SHGs, making it the largest such program in the world. During the period, average loan size almost doubled from Rs 19,379 ($ 484.5) per SHG to Rs 37, 574 ($ 939.4) per SHG in 2006, the average size of repeat loans grew almost three-fold from Rs 22,215 ($555.4) in 2001 to Rs 62,960 ($ 1,574) in 2006.
The alternative model of microfinance institutions (MFIs) has produced the success stories and poster organizations of Indian microfinance. MFIs are of diverse legal forms and it is difficult to estimate their exact number. Sa-dhan, an association of MFIs in India has 162 members with outstanding loan portfolio of Rs 1600 crores ($ 400 million) in March 2006. While the number of MFIs in India is probably well in excess of 800, top 20 MFIs in India account for about 95% of their aggregate loan portfolio.
Microfinance in India also exhibits tremendous regional disparities. It is fair to say that microfinance in India is largely a “southern” affair In 2005 about 83% of the households reached by microfinance were in the Southern states. Eastern India came next with 13% of the households while the West accounted for less than 1%. While conscious efforts are afoot to rectify this regional bias, it is likely to take a while before the regional distribution of microfinance approaches uniformity.
In terms of the products and services, apart from micro loans, the microfinance
sector in India focuses on micro-savings and financial literacy among the poor -
developing the habit and discipline of saving – and, more recently have begun, in a
relatively small way, to introduce micro-insurance. Individual and group level insurance is now being offered, in limited areas of both life and non-life types. A study on micro insurance products by ILO in 2003-04, identified 83 insurance products provided by insurance companies; half of them were life products. Out of those 24 were addressed to individuals and rest to the groups. Life Insurance Corporation (LIC) of India, (a public sector insurance company) provides both individual and group insurance. Various private sector insurance companies also provide these kinds of insurance products. In 2002, the Indian microfinance institution BASIX and A VIVA jointly designed a group insurance product to provide life insurance to all BASIX credit customers. Other than life risk, rural
household faces health risk, risk to agricultural activity, risk to live-stock, risk to assets used in non farm activities. Crop insurance and Life stock insurance are two common non-life insurance products offered by General Insurance Corporation (GIC) of India (public sector insurance company). But the delivery of the above products has been restricted to beneficiaries of various government sponsored schemes and there has been little active participation by insurers to deliver these products on a larger scale. The situation has improved somewhat after the opening of the insurance sector to private sector companies. For instance, in 2003, BASIX and ICICI Lombard introduced a rainfall insurance product, which was rolled over to six states by the year 2005. Finally, transferring money, particularly for migrant workers, is another area where micro-finance institutions are making an entry.
The performance of the larger MFIs in India
Table 1.1: Performance of MFIs in India
(Top ten MFIs on the basis of Total Assets)
Name of MFI
Total Assets (Mn. US $)
Return on Assets
Return on Equity
Profit Margin
Cost per Borrower
Avg. Loan Balance Per Borrower (US$)
Spandana
101.49
0.74%
22.00%
8.89%
6.0%
92
SHARE
101.33
1.22%
15.31%
9.16%
12.0%
111
SKS
78.78
1.75%
9.22%
13.55%
17.0%
123
MFI
54.47
4.35%
78.00%
60.14%
4.0%
123
AML
52.36
1.73%
33.27%
14.16%
11.0%
109
BASIX
40.89
1.42%
8.14%
11.41%
29.0%
161
Bandhan
31.72
9.07%
131.21%
34.04%
6.0%
67
KAS
28.90
2.18%
173.04%
21.75%
4.0%
70
GV
23.42
0.78%
17.02%
3.76%
16.0%
102
BISWA
21.77
2.36%
29.92%
20.97%
6.0%
108
Source: www mixmarket.org
Table 1.1 provides financial performance indicators of the leading microfinance institutions in India. The weighted average ROA for these MFIs is 2.1%’with considerable variability. The range is from a. low of 0.74% to a high of over 9%. The ROEs are extremely variable as well, ranging from slightly over 8% to over 173%, with a weighted average of 25.6%. The as set-weighted average loan balance is slightly over $ 108 with profit margins ranging from below 4% to above 60%. Clearly even among these largest players, the level of variability makes it difficult to generalize performance. However, it also shows that done properly, a microfinance institution can be a profitable enterprise.
It is possible that higher profitability may come at the price of lower outreach and that MFIs experience a “mission drift”. While data on the poverty level of clients is not uniformly available, all of these MFIs, with the exception of BASIX have over 98% of their lending to women borrowers. Given the negative correlation between the average loan size and the ROA and ROE figures, it may not be such a major concern.
A study by Sa-dhan in 2005 (using a sample of 74 MFIs) reflects that these MFIs performed well in terms of sustainability, asset quality, and efficiency. Evidence found that, large MFIs were the efficient users of funds, extending 81 % of their total assets as loans, while this figure is 75 % for medium and small MFIs.
A report by MIX Markets (MIX (2006)) highlighted the inverse relation ship between growth and size with young MFIs growing faster than the mature MFIs. The report shows that medium MFIs are sustainable and have positive returns on assets and equity. It also shows that the small MFIs are more efficient, with lower unit cost ratios comparing to medium sized MFIs (Table 1.2).
Table 1.2: Financial Performance of MFIs classified by client out reach and Loan Portfolio
Sustainability
Asset Quality
Efficiency
Categories
No. of MFIs
OSS
PAR
CAR
OCR
TCR
Client per credit officer
MFIs categorized by credit client outreach
Small (<10,000)
44
73.6
4.3
92.2
15
23.5
485
Medium (10,000- 50,000)
23
84.2
4.2
93.8
20.4
30.5
438
Large (>50,000)
7
123.3
1.5
99.3
14.2
23.7
372
Aggregate
74
110.3
2.2
97.7
15.4
25
405
MFIs categorized by loan portfolio
Small (< crore)
53
66.6
3.6
93.3
12.4
21.2
561
Medium (5-20 crore)
14
90
4.9
94.3
25.9
36.2
298
Large (>20 crore)
7
125.8
1.3
99.2
13
22.3
389
Aggregate
74
110.3
2.2
97.7
15.4
25
405
Sa-dhan recommended standards
100%
<10%
>90%
<20%
<30%
Between 250 and 350
Source : Prabhu Ghate (2006)
OSS: Operational Self Sufficiency (defined as Operating Income from Loans and Investments / operating Cost + Loan loss provision + Financing cost) ; PAR : Portfolio at risk (defined as unpaid principal Balance of Loans overdue by > 60 days ) ; CRR : Current Repayment rate (Principal amount collected – Prepayment / Principal due) ; OCR : Operating Cost Ratio (Total Operating Cost / Average Outstanding Portfolio) ; TCR Total Cost ratio (Total Costs / Average Outstanding Portfolio)
The MIX report on MFIs in South Asia, points out that MFIs in India are unique in leveraging the borrowed funds. The average capital asset ratio in India is 11%, which is half of the average of South Asia; Indian MFIs share the feature of providing loans from voluntary deposits, with Bangladesh., Around 8.4% of total loans funded from voluntary deposits, hence provide another financial service ‘Saving’ along with credit. Like Bangladesh, staff costs in the Indian microfinance sector are also one of the lowest in the world.
In terms of interest charged, Indian MFIs are among the highest in the South Asia region, which, however, has one of the lowest averages in the world. Thus by international standards, interest rates in microfinance in India, are pretty low. Nevertheless, because of cases of multiple farmer suicides in the Indian state of Andhra Pradesh, reportedly owing to extreme indebtedness, MFIs have come under government pressure to reduce interest rates. Table 1.3 provides the break-down of the components of interest costs in Indian microfinance.
Table 1.3: Interest rate Schedule for MFIs
Item of Cost
Basis of Cost
Percentage
Cost of Funds
SBI Prime Lending Rate
9%
Cost of delivery of Credit
Money order charges by Government Post Office
5%
Cost of Collection of repayment
Money order charges by Government Post Office
5%
Cost of provisioning of bad debts
As per RBI norms, based on extent of bad debts
1-3%
Profit margin
Minimum required to maintain capital adequacy as per RBI norms
1-2%
Total
-
21-24%
Source : Prabhu Ghate (2006)
Financing of MFIs in India
Commercial Banks
The growth of MFIs in the recent past has attracted most of the private sector banks. In the 1990′s most of the MFIs lending comes from FWWB and SIDBI. Earlier banks used to lend at the level of priority sector lending obligations, but now they have found lending to MFIs being profitable, with almost perfect repayment rates. For the last three years, commercial bank lending almost doubled in every year. (Table 1.4)
Table 1.4: Commercial Banks Outstanding to MFIs
(As of March 2006)
Bank
No. of MFIs Supported
Outstanding (in Rs Crores)
ICICI Bank
100
2350
HDFC Bank
N/A
250
UTI Bank
40
103
ABN AMRO Bank
19
87
ING Vysya Bank
19
61
Standard Chartered Bank
12
50
HSBC
8
15
Rishikulya grameen Bank, Ganjam
3
6
State Bank of India
1
5
UCO Bank
4
2
United Bank of India
1
2
Indian Bank
2
0.4
Source : Prabhu Ghate (2006)
Shows outstanding figures of responding banks at the end of 2006. Banks provide both term loans and cash credit. The rate of interest charged range from 8.5 to 11% for tenor ranging from 3 months to 5 years. For MFIs lacking track record, personal guarantees are also taken for security. As Table 1.4 shows, ICICI bank (the largest private bank and second largest bank in India) has the largest outstanding credit accounting for over 80% of the total commercial bank lending to MFIs. About 60% of this lending is based on the “partnership model” where MFIs function as social intermediary providing loan origination,, monitoring and collection services, for a fee. But the MFI partner is expected to share the risk of default up to some specified level. Another way of lending adopted by ICICI is that of portfolio buy-out. Under deals with certain MFIs, the bank has bought out their portfolio, for amounts on which MFIs are charged 9 %, Apart from lending, ICICI bank has taken the initiative of using technology, like low cost ATMs, mobile phone banking, internet services and others that help automate cash transactions in the field.
In January 2006, the Reserve Bank of India (RBI) specified guidelines for inclusion of certain agencies along with MFIs as intermediaries. The intermediaries were supposed to work on the basis of two models: the Business Facilitator Model (BFM) and the Business Correspondent Model (BCM). Under the BFM; NGOs, Cooperatives, Post Offices, Insurance agents and community based organizations work as intermediaries. These intermediaries would perform the “last mile” services – activities like, identification of borrowers, creating awareness about savings, processing and submission of loan applications and follow up for recoveries. While under the BCM model, intermediaries include NGOs and MFIs registered under the Trusts Act, not-for-profit companies (“Section 25 companies” in India) and Post Offices. In addition to BFM activities, the intermediaries perform the following additional activities: Disbursal of small value credit, recovery of principal, collection of interest, Sale of micro insurance and mutual fund products. The banks may pay reasonable commissions or fees to the intermediaries for these services.
Shortage of MFIs with requisite capacity and regulatory anomalies, among other things, constrain lending to MFIs by commercial banks. The probation on banks from charging more than PLR (of 11-13 %) on loans less than Rs 2 lakh ($ 5,000) and charges and commissions (over the PLR ) on loans less than Rs 25,000 ($ 625) increases the cost of funds for banks and made the BC model unworkable.
Venture Capital Funds
More recently, venture capital funds (VCFs) — both Indian and off-shore – are
entering the microfinance sector in India. (Table1.5)
Table 1.5 VCFs Investing in India
(Top ten funds on the basis of there Total Investments in MFIs)
Fund Name
Country to Incorporation
Funds Assets Allocated to MF Investments
(Mn. USS)
Funds Assets
(Mn. USS)
# of Active MF Investments
Project new Funds allocated to MF Investments
(Mn. USS)
Oikocredit
Netherlands, The
198.22
455.79
306
131.67
Dexia Microcredit Fund
Luxembourg
107.99
161.84
105
20.00
Respons Ability Fund
Luxembourg
89.59
96.15
111
N/A
Gray Ghost
United States
75.00
75.00
16
N/A
DOEN
Netherlands, The
51.19
79.15
15
6.99
HTF
Netherlands, The
37.17
39.97
37
3.96
CORDAID
Netherlands, The
34.64
63.47
90
9.47
SNS Institutional Microfinance Fund
Netherlands, The
30.01
170.00
13
140.00
Oxfam Novib Fund
Netherlands, The
28.13
28.13
77
N/A
Micro Vest 1
United States
22.57
24.23
25
7.50
Source : www.mixmarket.org.
Shows the top ten VCFs investing in India on the basis of their total MFI investment worldwide. These VCFs have helped reduce the problems faced by start-ups and emerging MFIs. According to an estimate by M-CR1L (2006), the current equity deficit- of sample MFIs is.Rs 23 crores ($ 5.75 million) and their total equity fund requirement is expected to be Rs 1,100 crores ($ 275 million) by 2010.
VCF entry into the microfinance sector in India is a recent phenomenon. Till Bellwether registered in India in 2005^ SIDBI Foundation for Micro Credit (SFMC) was the sole (and far from effective) major provider of equity capital to the sector. In the 2005-2006 budget, the size of NABARD’s MFDEF (Microfinance Development & Equity Fund) was doubled from Rs 100 crores ($ 25 million) to Rs 200 crores ($ 50 million).
The instruments preferred by VCFs have included both loans and equity and can broadly be classified (using Bellwether’s segmentation) as the following – Tier I: Equity investment in start-ups and big established MFIs; Tier II: Convertible debt provided to high potential NGOs-MFIs; Tier III: Debt to NGOs. The involvement of the famous venture capitalist Vinod Khosla has also generated considerable exposure to the sector.
But the existing foreign investment regulation for NBFCs, not specific to microfinance, creates a hurdle in the way of VCF, financing of MFIs, since MFIs do not always have equity requirement equal to minimum capital required for foreign investment (Table 1.6).
Table 1.6: Minimum capitalization requirement for foreign
equity investment in NBFCs
Percent Ownership
Minimum Capital requirement
Other Stipulations
0-51%
$500,00
Entire amount must be contributed up front
51-75%
$5,000,000
Entire amount must be contributed up front
76 – 100%
$50,000,00
$7,5 million must be contributed up front. The balance must be provided within 24 months.
Source : Prabhu Ghate (2006)
The regulatory environment
It is fair to say that microfinance in India has evolved so far largely in (and arguably because of) an absence of sector-specific regulations. While each player, according to its institutional status, was regulated by its respective apex body (frequently the central bank, the Reserve Bank of India) very little regulation specifically targeted at microfinance was in effect. That is likely to change soon with the introduction of a microfinance bill, currently in the Indian Parliament.
The objective of the Microfinance Regulation Bill is to register and regulate the trusts of registered societies promoting and helping SHGs. The bill has two broad objectives: (a) to promote and regulate the micro finance sector and (b) to permit Micro Financial Organizations (MFQs) to collect deposits from ‘eligible clients’. The bill defines an MFO as any organization that provides micro finance services and includes societies, trusts, and co-operative societies. The definition excludes SHG and groups of SHGs. The financial assistance to ‘eligible client’ by these MFOs cannot exceed (a) Rs 50,000 ($ 1,250) in aggregate per individual for small and tiny enterprise, agriculture, and allied activities or (b) Rs 1.5 lakh ($ 3,750) in aggregate per individual for housing purposes.
The bill seeks to bring the entire microfinance sector under the surveillance of The National Bank for Agricultural and Rural Development (NABARD). It will be NABARD’s role to promote and ensure the orderly growth of micro financial services by formulating policies for transparency, facilitating the development of rating norms and by specifying accounting norms and auditing norms. To offer thrift (savings) services to eligible clients, an MFO will need to obtain a certificate of registration from NABARD. Every MFO has to create a reserve fund by transferring a minimum of 15% of its net profit or surplus realized out of thrift services and micro finance services. NABARD may direct that this fund be invested in specified securities.
Also, NABARD shall constitute a Micro Finance Development and Equity Fund to be utilized for the development of the micro finance sector. The Fund would be managed by the Board of Directors of NABARD and would be used to provide any financial assistance to an MFO, invest in equity of an MFO, and meet any other expenses for the promotion of the micro finance sector.
The proposed bill seeks to regulate the trusts and cooperative societies promoting and helping SHGs, not SHGs themselves. However, SHGs are also cooperatives organized to provide certain services to its members more economically. These SHGs can not register themselves as cooperatives because according to state government and RBI, there can be only one cooperative credit society in a village. Since these SHGs are not legal entities, so they can not put money in bank in the name of SHG, but in the name one or two members creating room for fraud. The Unsettled issues about the bill includes: (a) whether MFOs are the appropriate vehicle to address credit needs of the poor; (b) whether NABARD is the appropriate body to regulate the sector, given that it itself is a player in the microfinance area; and (c) whether there are adequate safeguards to protect depositors’ funds.
Clearly not everyone is happy with the bill. What shape it will take by the time it becomes law and how that law will impact the reach and effectiveness of microfinance in India, of course, remains to be seen.
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Categories: sbi mutual fund Tags: PENNYWISE, PLAYING, safe
is the mutual fund is safe to invest ?which is best mutual fund?icici, relainece, sbi or else, for 3 yrs tenur
is there any chances of loss?can i invest Rs. 50000/- for each 6 months advnce upto 3 years??
Can i subscribe in mutual with the help of icici.direct.com?
pls advice,
Categories: sbi mutual fund Tags: Best, else, Fund, fundicici, invest, Mutual, relainece, safe, tenur
Are Mutual Fund Investments Safe?
Mutual Fund Investments are safe always. You may know that all the profits shared to the investors by the mutual funds are coming out of the profits from the investments in the stock market.
Normally mutual fund schemes are entrusted to the designated person who is called fund manager.
It is his look out where to invest and when to invest and when to come out. They are professionally qualified to carry out these activities sincerely.
Normally every mutual fund will have a risk management team also. This risk management team’s responsibility is to safeguard the interest of the investors when the stock market is behaving differently beyond the expectation.
It is the general comment of any mutual fund companies that while the investors are sleeping they proudly say that their fund managers are working briskly to safeguard the investments of their investors.
While investing through mutual funds, investors need not worry about the market fluctuations or volatility. Their fund managers are very intelligent and they very well know about the market’s behavior at all times.
They won’t be trapped by any rumors about the market condition. They won’t chase after the artificial boost of a particular company’s share.
If that is the situation they will immediately analyze whether the boost is real or artificial. If the boost of a particular company’s share is real then only they will take positive decision.
Moreover every mutual fund will want more investments from their existing or new investors only if they manage the fund effectively and give good returns to their investors sincerely.
So they naturally work sincerely for high returns to the investors.
Ideal period for every investor to remain in the mutual funds is from 1 to three years. Then only they can get good returns for their investments.
Investors need not worry about the volatility in the stock market if the period of investment is from one to three years.
Mutual fund investments are diversified in various good performing companies.
In other words every investor in the Mutual fund is having his investment portfolio spread over to many good performing companies, whether the amount invested by him/her is minimum or maximum.
Mutual fund investments are like a lifeboat in the ship.
Categories: mutual fund investing Tags: Fund, Investments, Mutual, safe
Stock Versus Mutual Funds – Safe or Sorry?
It seems a little odd to compare stocks to mutual funds. Actually, mutual funds are largely composed of stocks. It is important to make the distinction between the two as there are some very real advantages to using mutual funds.
It is fun to invest in individual stocks because each company has its own story to tell. However, you want to focus on making money! Investing is not a game and should not be taken lightly.
When you invest in mutual funds, you are able to diversify and reduce your risk of losing money. Do you think that those wealthy investors out there just put their money in a couple of stocks? No! Either they are investing in mutual funds or are buying large numbers of stocks.
When you purchase mutual funds, you are hiring a professional manager at a relatively inexpensive price. It would be a little off the wall to think that you have more knowledge than a mutual fund manager! Most managers have been around the track a number of times and have the academic credentials to back up their knowledge.
Mutual fund companies have the advantage of capitalizing on economies of scale because they pool investors’ monies together. Since these companies have large amounts of money to invest, they usually have personal contacts at many brokerage firms and often trade commission-free.
Mutual funds are easy to take care of. The bookkeeper is much more challenged when there are hundreds of stocks to keep track of!
Mutual funds are very liquid. Put in your order for money in the morning if you are short on cash, and by the time the market closes you may have a check waiting for you. Stocks, on the other hand, are much more difficult. It all depends upon what you have invested in. CDs are not at all liquid and bonds are difficult as well.
If you are new to investing then mutual funds may be the way to go. You can invest small increments of money at regular intervals and not have to pay a trading cost. If you invest in stocks, you will find that they carry high transaction fees. This makes it quite difficult for the small investor to realize a profit.
If you are a wealthy stock investor, then you have it made because you get preferential treatment from the brokers. Wealthy bank account holders usually get the red carpet treatment from the banks. However, mutual funds do not discriminate. Whether you only have a paltry $50 or a huge sum of $500,000, you all get the same manager, the same investment and the same account access.
Generally speaking, mutual funds have a much lower risk than stocks. This is largely to diversification which was mentioned earlier.
With stocks, there is always the worry that the company you are investing in will go belly up! With mutual funds, that is next to impossible.
As you can see, there are many advantages in investing in mutual funds over stocks. It is not to be said that you should never invest in stocks, but if you are just getting your feet wet with investing it would be best to go with mutual funds!
