Investment options for
maintenance
| Mutual funds are not just for retail and corporate investors. Even
resident associations can use these products to take care of their costs |
NEW TREND: Residents' associations have begun to look at smart investment
options to take care of their building maintenance.
Roopa Shankar, an investment consultant in Bangalore, got a
call from an investor last week. The investor wanted to park money in a safe
instrument but was looking for slightly higher returns than fixed deposits with
better tax efficiency. More importantly, when Roopa went to meet her client, it
was not a single individual. A group of investors were quizzing her about
investment options. Interestingly, the corpus they were talking about was not
their savings but money collected from residents living in an apartment.
It's a new trend in cities like Bangalore where Resident
Welfare Associations (RWA) too have begun to look at smart investment options to
take care of their building maintenance. The money collected from residents in
apartments has seen a steady rise. In addition, the monthly expenses incurred by
these apartments, too has gone up because of various amenities offered by
property builders. On the other hand, the fixed deposit interest which hovered
in the region of 12-15 per cent earlier, has slipped down considerably. Though
this rate has gone up in the last 6 months to attractive level, the resident
associations complain that it hasn't been enough to meet their costs.
Fresh
investment
In such a scenario, it's time for RWAs too think of fresh
investment options besides fixed deposits. It has almost become a necessity as
interest on FDs is a taxable income. Here are some options RWAs can look at:
MIPs: Mutual funds offer monthly income plans and they are
risk-free as the fund invests in debt products. Only a small portion of the
corpus is allocated for equity to improve the overall returns from the scheme.
These funds, however, don't assure regular interest income and instead, the
investor earns his returns in the form of dividend. Since returns are not
assured, the returns can vary from month to month. Generally, these funds tend
to outperform FDs by a couple of percentage points and also offer capital
appreciation.
The biggest advantage of MIP over FD is that dividend income
is not taxed in the hands of the investors and hence this is a better tax
efficient option when compared with FDs.
Fixed Maturity Plans (FMPs): This can be another option for
RWAs when they have surplus for shorter period of time. Fixed maturity plans, as
the name suggests, is a debt product for a specific period of time. The time
horizon can be as low as 90 days to a couple of years. FMPs too invest only in
debt products and hence are completely risk-free. The returns from these plans
depend on the interest scenario and hence one needs to keep an eye on these
plans on a frequent basis.
Systematic transfer plans (STP): This product is ideal for
RWAs when the property is new and when they are sitting on a larger fund size.
In this product, an investment can be in a debt, balanced fund or equity scheme
and the association can fix a sum which can be withdrawn on a monthly basis. For
instance, when an association is sitting on a corpus of Rs 50 lakhs, it can opt
for a systematic withdrawal of Rs 1 lakh on monthly basis. The balance corpus in
turn, generates returns based on the fund chosen. For RWAs, a balanced fund
would be more ideal as they are volatile because of debt component.
All the above products are an option over and above fixed
deposits. Traditionally, FD has been the only option chosen by most RWAs but
thanks to the growing penetration of mutual fund industry, the associations can
also make use of this investment vehicle.
Needless to say, this requires the consensus of all
participants and RWAs should also take into account the risks associated with
the investments.
SRIKALA BHASHYAM
Courtesy: Property Plus, The Hindu
http://www.hindu.com/pp/2007/03/31/stories/2007033100540300.htm
