Uses for Bonds--

Individuals and institutions can use bonds in many ways: from the most basic, such as for preserving principal or saving and maximizing income, to more advanced uses, like managing interest-rate risk and diversifying a portfolio. Bonds can also be an afterthought, especially during flight-to-quality events, when investors flock to the safest bonds they can find to weather financial storms. Bonds provide a predictable stream of coupon income and their full par value if held to maturity.

Top six ways that you can put bonds to work for you:

1. Preserving Principal

2. Saving

3. Managing Interest-Rate Risk

4. Diversification

5. Expense Matching/Immunization

6. Long-Term Planning

To know in details about each of them, Read here...

The Cockroach Theory !!

"Cockroach Theory" --You hear about cockroaches, you see them, but do you really know the theory related to them?

The 'Cockroach Theory' is a market theory that means that "Bad news tends to be released in bunches" in the same way as seeing one cockroach is usually evidence that there are many more lurking unseen.For example, Bad news from one company in a sector may indicate worsening conditions in the sector, which will therefore mean more bad news can be expected from other companies in the sector. In other words, the fact that one comapny (one cockroach) faced financial problems indicated that many other similar businesses were likely to face the same issues.

Similarly, in the credit market, “once a few problems emerge, investors assume there are many more to come,” the FTN analysts write. “Investors have to be sensitive to credit because nothing else will destroy earnings and capital given leverage inherent in bank balance sheets….”

The name "cockroach" is used for this theory because cockroaches travel in large groups and usually are not looked upon kindly.

Indian economy tops optimism list--

India has regained top slot in optimism among privately held businesses for 2009. While optimism amongst privately held businesses (PHBs) around the world slumped by 56% over the last 12 months.

Despite raging pessimism, the survey found that PHBs from 11 countries remained optimistic about the outlook for their economies, with India leading this group (+83%), and Botswana (+81%) with Brazil (+50%) also emerging on the top. Japan (-85%) and Spain (-65%) were the most pessimistic. It is the first time that pessimists have outweighed optimists about the outlook for their economy .Of the four largest trading nations, PHBs in the United States and mainland China, who together contribute over 32% of global GDP1, scored their optimism at -34% in the United States and +30% in Mainland China. Similarly, Japan and India (collectively contributing over 11% of global GDP) scored their optimism at -85% and +83% respectively. (Source:ET)

When asked to identify the most significant factors causing most concern for their business, PHBs in 33 out of the 36 economies cited a fall in consumer demand, while citing a shortage of business credit as a secondary concern.

Filter rule-- A trading strategy !!

Filter rule is one of the trading strategies that benefit traders from the price movements of the stocks and fall under serial correlation strategy. A technical trading rule in which an investor buys and sells stocks if their price movement reverses direction by a minimally acceptable percentage.

Filter rules are created from analyzing the historical price trends of a security. The assumptions that is followed in this trading is that price changes are serially correlated and emerges from price momentum theory, i.e., stocks which have gone up strongly in the past are more likely to keep going up than go down.

So in conclusion, this strategy may work provided each time your bets are good. However, a good and justified way of making money from this strategy is through efficient money management. Remember, if you want to follow this strategy be prepared to get wiped off completely, and be ready with large amout of money. Evidence has suggested that filter rules are rarely successful in creating profits for the investor.

Artbitrage funds have a greater scope in 2009--

If you are interested in investing in equities but fear the market volatility, the smartest way will be to invest in arbitrage funds. These mutual funds are the best performing funds among the equity category in 2008. In fact, with uncertainty still haunting the financial market, these funds are expected to create value for investors in 2009. The higher the volatility, higher the arbitrage opportunity .But investors not familiar with this type of scheme might just end up thinking that these are just other equity-oriented schemes with a different name. However, this is not so and rather it is a type of income scheme. These funds take advantage of the arbitrage opportunities between the cash and the futures market to generate fixed income.

Such funds are better suited for investors who want low risk profile funds but expect decent returns. What leads (or rather misleads) everyone to believe that arbitrage funds are risk-free is that, in arbitrage strategies, both the buying and selling transactions exactly offset each other, thus making it immune to the market fluctuations. But uncertainty prevails in almost all investment schemes and these funds are no exception.The equity market in 2008 has given a lot of opportunities for arbitrage and mutual funds have been able to capitalize on that.

In India, a host of AMCs, including SBI, JM Financial, Kotak, UTI and IDFC, offer such funds. In the last 12 months, the average returns from arbitrage funds are around 8.8%. Scheme-wise, arbitrage funds such as UTI Spread Fund and HDFC Arbitrage Fund have given a return of 10.57% and 9.37%, respectively.

As far as tax treatment is concerned, since funds are largely invested in the equity arbitrage funds attract a short term capital gain tax of 15%. But if you hold it for more than a year, you are not liable to pay any tax. For tax purposes arbitrage funds are treated as equity funds. Hence, they enjoy lower tax vis-à-vis debt funds.

There is no denying that arbitrage funds are relatively less risky as compared to pure equities. However, to slot them as "risk-free", amounts to mis-representation. Arbitrage funds do have an element of risk; so investors who are being told that arbitrage funds are less risky have been misled.But all funds in this category have in the past one year or so outperformed their benchmarks by a convincing margin and there is greater scope for introducing these products in the coming days. Thus, the investor community should take to this concept more seriously.

Variable annuities & living benefits !!

A variable annuity is a tax-deferred financial product that pays benefits to the annuitant over a specified number of years and a death benefit to the annuitant's beneficiaries. The benefit paid to the annuitant is usually based on the purchase payments and the performance of the underlying investments. The underlying investments can be diversifies and rebalanced, which provides the investor with flexibility to monitor and manage his or her portfolio.However, a variable annuity product may be subject to a variety of fees, including surrender charges if withdrawals are made before certain periods and mortality and expense risk charges.

The living benefit--as the name suggests--is intended to guarantee the benefit provided to the annuitant and toward that end, usually offers guaranteed protection of the principal investment, the annuity payments and/or guarantees a minimum income over a specified period to the annuitant and beneficiary. There are several types of living-benefit features, including the following:

• Guaranteed Minimum Accumulation Benefit (GMAB)
• Guaranteed Minimum Withdrawal Benefit (GMWB)
• Guaranteed Minimum Income Benefit (GMIB)

With many investors seeing their retirement portfolios losing significant market value, a variable annuity with a living-benefit feature can be a good solution for protecting retirement nest eggs.

A key determining factor that affects the choice between an annuity and a traditional portfolio is the individual's need for guaranteed income. For someone with little or no risk tolerance or limited financial resources, an annuity may provide the needed guaranteed income stream.To know more about variable annuities and living benefits..Read here..

Why's the New Year bonanza only for the 0fficers and not for our Jawans--

The hopes of the armed forces had risen after the PM constituted the three-member ministerial committee headed by external affairs minister Pranab Mukherjee in September to look into the four ``core demands''. But the ``piecemeal'' decision of the government now has left the forces stunned.With the armed forces complaining of being handed out step-motherly treatment by successive pay commissions, PMO has decided that the three services will have a dedicated panel to decide salary issues. Though a long pending demand of the forces, the decision does not bring any immediate cheer to Army, Navy and IAF since the next pay commission will come along only after 10 years. As per the PMO communication to the defence ministry this week, only those Lt-Cols serving in combat roles will get PB-4.

Sources say the almost 1.5-million-strong armed forces are seeking a hike of over 400% in their salaries and allowances from amounts fixed by the 5th Central Pay Commission (CPC), which came into effect on January 1, 1996. But whether the 6th CPC gives them what the armed forces think is their due, especially with around 25% of the Rs 96,000-crore defence budget for this fiscal earmarked just for salaries, only time will tell.

It is a good news to officer of defence forces that they had hike in thier salary but what about the jawan, his salary is still equal to civilian peon.I think the govt and the defense minister had made injustice to the jawan. The real fighting force are the Jawans,Sailors and the Airmen of Army,Navy and Airforce respectively. But when it come to matter of benefits- it is for the officers only as always.

Our defence forces are doing excellent job under the current hostile atmosphere. They deserve better than the civilian staff for the reason that the nation's security is foremost and the armed forces are sacrificing their lives for our security. The demand for pay hike by defence personnel is absolutely justified. Their pay package & perks should be AT LEAST double that of a civilian in government service. Only then can we be assured of Quality personnel. It’s sad that our brave soldiers have to literally beg for a rise, when it should have been granted to him gratefully. It is justified demand and should be acted upon immediately. Army personnel at the higher cadre can be compared to any top corporate executive. The salary difference doesn't worth the life risk associated with the profession. Sometimes they are even less paid than a BPO employee. All the Pay Commissions constituted so far have been unfair to the Defence Services, primarily on account of the fact that they do not include a Member from the Defence Services in the Pay Commissions.

It's about time! All armed forces, police force should be well paid ,well trained &well equipped to protect our country, this is the only way out to respect their deeds and services which they render to the mother nation.