iPlan | S I P / F D / N C D

    Definition : Systematic Investment Plan is an investment strategy wherein an investor needs to invest the same amount of money in a particular mutual fund at every stipulated time period.

    Description : Investing in SIP enables an investor to take part in the stock markets without actively timing them and he/she can benefit by buying more units when the price falls and less units when the price rises. This scheme helps reduce the average cost per unit of investment through a method called Rupee Cost Averaging.

    These are the retirement products available for investment in our country. Ideal time to start saving for retirement would be 1-2 years after you get your first job. If you have not started yet, it is time to start now.

  • Month Investment Current NAV Units purchased
    3rd  Jan2015 1000 10 100
    2nd Feb 2015 1000 5 200
    2nd Mar 2015 1000 15 67
    1st April 2015 1000 14 71
    1st May 2015 1000 15 67
    1st June 2015 1000 20 50
    1st July 2015 1000 22 45
    3rd Aug 2015 1000 25 40
    1st Sep 2015 1000 27 37
    3rd Oct 2015 1000 29 34
    Total 1000   71
  • Average NAV=(10+5+15+14+15+20+22+25+27+29)/10=18.2

  • For Example : A person invests Rs 1000 for ten months in SIP. We will find out that the actual average purchase cost of asset would be lower than the average NAV of his investment over 10 months, which is the key benefit of Rupee Cost Averaging.
    Actual average purchase cost as per SIP = (1000X10)/ (100+200+67+71+67+50+45+40+37+34) = 14.06


    What is Fixed Deposit ?
    In today’s markets, there a myriad investment opportunities available to people in India but of them all there is one which has been a favoured instrument in the country for ages. This instrument is known as the fixed deposit or term deposit. Imagine, if you will, that you find yourself flush with a lump sum of money which you intend to save and want it to grow but don’t want it to be at risk in any way. This is where the fixed deposit comes in because you can take that money and give it to a bank for a specific period of time ranging from 7 days to 10 years. Once the money is with the bank, it starts earning an interest that is based on the duration of the deposit and can go to rates as high as 9% per annum, depending on the bank and the scheme. Once the deposits tenure is over, the bank returns the money to you along with all the interest that it has earned. Other than safe and steady growth, the fixed deposit also offer features like extra interest rates for senior citizens, no limits on how much can be invested in the FD and even tax benefits if the investment is made in a tax saving fixed deposit; all of which make a favourite among investors in India.

    Features of Fixed Deposit Account :
    • The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money).
    • The amount can be deposited only once. For further such deposits, separate accounts need to be opened.
    • The depositor is given a fixed deposit receipt, which depositor has to produce at the time of maturity. The deposit can be renewed for a further period.
    • As per the Traditional scheme, the interest on the FD account is credited to the Savings account specified by the depositor on a monthly basis or on a quarterly basis. For the Reinvestment scheme,         the interest is compounded to the principal amount on a quarterly basis.
    • Tax is deducted at source, from the interest on Fixed Deposits, as applicable, as per the Income Tax Act, 1961.

    Traditionally, Fixed Deposits (FD) have been seen as a secure and profitable medium of investment. However, many people, especially investors in the higher tax brackets, ignore a crucial detail when it comes to Fixed Deposits- the interest earned through FD is taxable in line with an individual’s tax slab. Consequently, this detail ensures that your returns from FD investments is actually lower than expected.

    For example - If you are in the 30% income tax slab and have a fixed deposit that gives you 9% interest, the actual interest passed down to you after the tax cuts is just 6%. Thus, having a working knowledge of how taxes work in terms of an FD helps you stay on top of things.

    Remember that interest on fixed deposits are calculated annually or on a cumulative basis. However, the same FD is taxed on an accrual basis, meaning revenue is recognized when earned and expenses are recognized when incurred. Thus, the timeline on reception of the interest on your FD isn’t a factor for tax to be imposed upon it. You will have to pay the corresponding tax at the end of the financial year, and even in situations when the interest isn’t taxable, it must be displayed on your IT returns.


    The debentures which can"t be converted into shares or equities are called non-convertible debentures (or NCDs).

    Definition Debentures are long-term financial instruments which acknowledge a debt obligation towards the issuer. Some debentures have a feature of convertibility into shares after a certain point of time at the discretion of the owner. The debentures which can't be converted into shares or equities are called non-convertible debentures (or NCDs).

    Description :  Non-convertible debentures are used as tools to raise long-term funds by companies through a public issue. To compensate for this drawback of non-convertibility, lenders are usually given a higher rate of return compared to convertible debentures.

    An NCD can be both secured as well as unsecured. For secured debentures, which are backed by assets, in case the issuer is not able to fulfil its obligation, the assets are liquidated to repay the investors holding the debentures..

    Secured NCDs offer lower interest rates compared with unsecured ones. If you want a regular income from NCDs, you can pick those that pay interest on a monthly, quarterly or annual basis. If you just want to grow your wealth, you can opt for cumulative option where the interest earned is reinvested and paid at maturity.

    You need to check the rating of that bond. Such debt bonds are normally rated by credit rating agencies like CRISIL. A good rating indicates reasonable assurance of safety and return of principal as well as interest.

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