On Reader's request: Tata Capital NCD and some advice on Insurance

A reader had requested me to post few details about Tata Capital NCD. So here it goes:

1. NCD are being offered in demat format only. Hence you need to have a demat account before you can apply for NCD.
2. The prospectus can be found here.
3. NCD are being offered in four options: Monthly interest, Quarterly , Annual & Cumulative Interest. ( Refer to Page 26 & Page 137 of the prospectus for complete details about these options ).
4. For Annual & Cumulative option, the interest rate is 12% p.a. For monthly option it is 11% p.a. and for quarterly option it is 11.25% p.a.
5. The NCD have a tenor of 5 years from the date of issue. Tata Capital can call for early redemption of NCD after 3 years ( 3.5 years for Quarterly option ). Similarly you can also pre-maturelty withdraw after 3 years ( 3.5 years for Quarterly option ).
6. Minimum investment amount is Rs. 1 Lac for Monthly Interest option. For all other options it is Rs. 10,000/-
7. No TDS on interest, if held in demat form.
8. How to apply: Approach Integrated Enterprises or you can directly contact the registrars Karvy Computerhare to obtain the application form and apply.

Disclaimer: This is not an offer for sale or investment. Please refer to the offer prospectus for complete details.

Chinmay shah has asked me a question related to Insurance. You can read it here. My answer is below.
Generally combining Insurance and Investment is not good. Hence ULIPs are a strict no-no in my opinion. Many good financial advisors have written extensively about the dis-advantages of ULIPs. You can read them here, here and here.

Since you want to invest for your child's education, it means that you need the money atleast 15 years from now. You can use a combination of PPF & SIP (Systematic Investment Plan ) in mutual funds to achive your goals.

1. PPF : You can open a PPF account in the nearest SBI branch or Post Office in your or your child's name. Use an agent to open PPF account, the agents make the job much simpler. PPF offers 8% p.a. ( interest rate may change in future ) which is tax-free. The scheme maturs after 15 years. For more details refer here.

2. Systematic Investment Plan: To understand SIP you can read this article. In simple terms SIP is an investment in mutual funds distributed over a period of time.

Below is a sample calculation, you can adjust it to your needs:
Amount required after 15 years: Rs. 25,00,000/-
Amount you can save every month for your child's future: Rs. 5000/-
Returns offered by PPF: 8% p.a. ( assumed )
Returns offered by SIP in mutual funds: 15% p.a. ( assumed, a conservative estimate ).

Let's allocate your monthly savings of Rs. 5000/- as:
Rs. 2000 for PPF and Rs. 3000 for SIP in mutual funds.

Now let's calculate whether you will be able to achieve your goal of accumulation Rs. 25 Lacs after 15 years.
Go to the recurring deposit calculator.

Calculation for PPF:
Recurring deposit amount: 2000
Frequency of deposit: monthly
Interest rate: 8
Duration: 180 months

Amount on maturity: Rs. 696690.32 ( ~ Rs. 7 Lac )

Calculation for SIP in mutual funds:
Recurring deposit amount: 3000
Frequency of deposit: monthly
Interest rate: 15
Duration: 180 months

Amount on maturity: Rs. 2030589.27 ( ~ Rs. 20 Lac )

After 15 years you must have accumulated around Rs. 27 Lacs ( based on the returns we have assumed ). The actual returns may be higher or lower.

By varying the your monthly contribution and the allocation between PPF & SIP in mutual funds you can achieve your financial goals easily.

Choice of mutual funds for SIP: I would recommend you to invest via the SIP route in 3-4 mutual funds of the equity diversified type. If you are first time investor in mutual funds, you can ask your broker/agent/financial advisor for help. You can also make use of Value Research ratings to choose an equity-diversified mutual fund.