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Kirtan A Shah

25 Nov, 14 tweets, 3 min read

A thread on National Pension Scheme (NPS)

This is the simplest yet the most comprehensive piece around. Do ‘re-tweet’ and help us reach more investors ☺
(1/n)

Government realized that committing 2 pay a pre defined fixed pension based on a formula may nt b sustainable & hence decided to move 2 contributing some amount over & above the salary of the employee, where even employee contributes from the salary into a common account (2/n)

The common account will keep accumulating investments and returns, from which pension can be received depending on whatever is accumulated. That account is National Pension Scheme (NPS) (3/n)

Government employees who joined on or after 1/1/04 automatically become a part of NPS & other corporate salaried employees and self-employed can also opt for the NPS (4/n)

Imagine an NPS 2 b like ur MF investment, there r choices to pick from & someone will manage the funds. NPS can be categorized as government & non-government. Non government is further classified as corporate (Corporate Employees) and All India citizens (Self Employed) (5/n)

NPS offers the below options to choose from,

(a) 2 approaches – You can choose active or auto fund management
(b) 4 Asset classes – You can choose between Equity, Debt and Alternative
(c) 7 fund managers – You can choose between 7 Fund Managers (6/n)

Contribution to NPS can be made in 2 buckets, Tier I and II accounts. Tier I is the default account for all subscribers which comes in with lock-in (cant redeem before retirement*) but there are tax advantages. (7/n)

Tier II account is optional, which gives you flexibility to invest & redeem anytime but the tax advantage is missing. (8/n)

Government employees will have the following options to choose from in Tier I account
(a) Default
(b) Scheme G
(c) Auto – Lifecycle 25 scheme or Lifecycle 50 scheme (9/n)

Non-Government employees will have the following options to choose from in Tier I account
(a) Active Choice
(b) Auto – Lifecycle 25 scheme, Lifecycle 50 scheme or Lifecycle scheme 75 (10/n)

Tier II account investment options for all subscribers (Government & Non-Government) is same as Tier I of non-government

Why would a government employee choose Tier II?
Can also get active choice and Lifecycle 75 scheme, which is not available in Tier I (11/n)

Non-Government employees may choose Tier II for liquidity as it allows to be redeemed anytime unlike Tier I, which is locked till retirement

P.S. – We don’t recommend Tier II investments (12/n)

Contribution 2 NPS qualifies for 1.5L under 80C & an additional 50K is also tax deductible

@ maturity, 60% of the accumulated corpus can b redeemed tax-free but the remaining 40% has 2b invested with an Insurance company 4 annuity. Detailed understanding of the same in the blog

@stepbystep888

We believe, some section of investors can invest in this. For the details of who should & who should not, read our detailed blog on the same by @stepbystep888. I can promise u this is the most comprehensive article on NPS around. Go follow him

fpa.edu.in/blog/all-you-w… (END)

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More from @kirtan0810

Kirtan A Shah

@kirtan0810

20 Nov

Fixed Income investment strategies (Thread)

Do 're-tweet' & help us reach & benefit investors

It’s a misconception that FD, RBI Bond, PPF etc have no risk. The reason we don’t see the risk in them is because for us, risk ONLY means loss of capital. (1/n)

1. There r 3 risks to keep in mind while we do fixed income investing

a. Default Risk-Investment has a risk of default. You might not get paid the interest or ur capital may not come back in full. FD, RBI Bonds, PPF generally may not have this risks but corporate FD’s do (2/n)

b. Interest Rate Risk-After u invest, Interest rates going up or down can also be a risk

(i) Imagine investing in a bank FD for 5 years at 5% right now & a year later interest rates go up, u will still keep receiving the same 5% & not the increased rate, this is a risk (3/n)

Read 18 tweets

Kirtan A Shah

@kirtan0810

17 Nov

Index Funds v/s ETFs

Do 're-tweet' so that we can reach a larger audience :)

(Thread)

(1) While index funds and ETF’s look similar, there are multiple differences you need to keep in mind before investing in either of them. Let me highlight the important ones (1/n)

(a) NAV – Index funds can be bought/sold like any other open-ended MF at the day end NAV from the AMC where as ETF’s can be bought like a normal stock during trading hours at the real time NAV/Traded Price or iNAV (2/n)

(b) Expense Ratio – Theoretically, expense ratio of ETF is less than Index funds but it does not include the brokerage to be paid while buying/selling the ETF through a broker on the exchange and hence don’t compare expense ratios directly between Index and ETF’s. (3/n)

Read 12 tweets

Kirtan A Shah

@kirtan0810

13 Nov

What better day to discuss Gold, isn’t it?

Topic - Physical Gold v/s Digital Gold v/s Gold ETF v/s Sovereign Gold Bond (SGB)

(Thread) – DO RE-TWEET FOR A LARGER REACH :)

(1/n)

(1) Physical Gold – Buying gold from your friendly jeweler or bank

(a) Pro
(i) Tangible (You can touch it)
(ii) Buy in cash, confidentiality, difficult to trace
(iii) No maximum limit on buying
(iv) Highly Liquid

(2/n)

(b) Cons
(i) Storage/Theft
(ii) Purity (Cheating)
(iii) Making Charges (upto 35%)
(iv) Taxation vs SGB
(v) GST – 3% on selling gold
(vi) Inconsistency of pricing across sellers & spread vs traded gold
(vii) No regulator

(3/n)

Read 17 tweets

Kirtan A Shah

@kirtan0810

9 Nov

Alpha is not fund return – index return (excess returns over benchmark), that’s called active returns and not Alpha.

Alpha means excess returns over ‘minimum expected returns’ from the fund

(A thread) (1/n)

What is the minimum expected return from a fund?
Depends on the risk the fund is taking
a. If the fund is taking risk same as the index, minimum expected ME return from the fund is same as the Index.
b. Fund is taking risk higher than the index, ME is higher than the index (2/n)

(c) Fund is taking risk lower than the Index, ME is lower than the index

You should not look at only beating the index; you should look at beating the minimum expected return based on the risk the fund takes, which is Alpha. (3/n)

Read 12 tweets

Kirtan A Shah

@kirtan0810

30 Sep

(Thread) Understanding Real Estate Investment Trust (REITs) – This is for education purpose and the story is made up to simplify the concept, don’t take it at face value (1/n)

Lets say I am a RE developer, K Raheja. I like a land in Mumbai & Hyderabad 4 some commercial development. I decide to buy it. Where will I get the monies 2 buy & construct it?
(1) Self
(2) Bank, NBFC, MF - Debt
(3) Partner – someone else investing as Equity (2/n)

So I invest some monies, got some 4m banks & MF’s & I also got Blackrock to invest 2 buy the land & make the business park called Mindspace. I constructed around 23-mn sq ft with multiple building & I started leasing them out to companies who wanted rented office premises (3/n)

Read 12 tweets

Kirtan A Shah

@kirtan0810

13 Sep

Parag Parikh Long Term Equity fund will be introducing 'covered call strategy' in the fund. This can be a game changer for the fund in a market that does not steeply go up or moves up gradually or stays sideways or even falls (1/n)

Options is slightly difficult to explain over twitter, so here’s my video on ‘basics of options’, do subscribe to my channel ☺ (2/n)

How does a cover call work?
When a fund buys a stock, they expect it to go up. But they don’t make returns if the stock stays sideways or falls and is exactly where cover call comes into picture. Let me explain, (3/n)

Read 13 tweets

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