Soon after the decision to withdraw the popular 'Bima Plus' unit linked plan, LIC has decided to launch a new ULIP- 'Jeevan Plus' with effect from 18th October 2005. This is a unit linked Whole Life plan, which offers investment-cum-insurance throughout the life time of the policyholder. The policyholder can choose the level of cover within the limits, which will depend on the mode and level of premium he agrees to pay. The allocated premium will be applied to buy units as per the chosen fund type (Bond fund, Secured fund, Balanced fund, Growth fund). Units will be allotted based on the Net Asset Value (NAV) of the respective fund as on the date of allotment. There is no Bid-Offer spread (both the Bid price and Offer price of units will be equal to the NAV). The NAV will be declared on a daily basis and will be based on the investment performance and Fund Management Charges (FMC) under each fund type. The Policyholder will have the option to choose any ONE of the above 4 Funds. In case no Fund is opted for, the allocated premiums shall, by default, be invested in the SECURED FUND. For one month from the date of launch, the NAV under all funds will be Rs.10/-.
The chaos in the equity market has left the investors perplexed. With a lot of variety to choose from it becomes increasingly difficult to make a correct choice. Investors need to know the differences and the risks involved in mid-cap stocks, small-cap stocks and penny stocks. There is no one or a common definition that will fit a particular category of scrips because the classification parameters differ for each entity that is undertaking the classification. Thus, what is mid-cap for an analyst with a broking firm will differ from that of a mutual fund manager and so on.

A mid cap stock is the one which does not fall in the list of top companies. One of the easiest ways to identify them is to look at the net investment or market capitalization of a company. Another way of calculation is to exclude 750-1000 companies based on market capitalization and then remove a particular percentage of the top companies. This will give you your mid cap segment.

Small cap companies are those that come after the mid cap companies on the market cap rankings. The small cap companies have low market cap, which is generally below Rs 100 crore. However these are different from penny stocks.
What do you think penny stocks are? These are the companies that have a market price that is less than the par value, which means that it generally quotes for a few rupees. Penny stocks costs the least ranging within a few rupees. The risk of losses increases with these stocks. Along with low price they also have low volumes. When dealing with such stocks it is necessary to make a careful study of the market. Further there is quite a bit of speculation in such stocks resulting in sharp movements. Often, volumes fluctuate resulting in these stocks becoming illiquid when market conditions become tough.

So it becomes very important to have complete information before investing in any kind of stocks. Risks are involved in all types of stocks but it can be minimized to a greater extent if you know what you are investing in.

Keep in mind that classifications such as "large cap" or "small cap" are only approximations that change over time. Also, the exact definition can vary between brokerage houses
There is no one or a common definition that will fit a particular category of scrips because the classification parameters differ for each entity that is undertaking the classification. Thus, what is mid-cap for an analyst with a broking firm will be differ from that for a mutual fund manager and so on.
One of the easiest ways to identify a mid cap or a small cap stock is to look at the market capitalization of a company.
The small cap companies are those that follow the mid cap companies on the market cap rankings. Thus they have a low market cap, usually below or around Rs 100 crore. These companies are quite large in terms of numbers because of the large number of scrips present on the exchanges. One has to clearly distinguish these from penny stocks because there is a difference in what they represent.

Penny stocks are a different breed together. These are companies that have a market price that is less than the par value, which means that it generally quotes for a few rupees. There are some additional conditions that one can use to understand the nature of penny stocks. One of them is that usually the fundamentals of the company are often very weak. This could be something like a very minuscule turnover or losses, or in many cases, no factory or operations. Further there is quite a bit of speculation in such stocks resulting in sharp movements. Often, volumes fluctuate resulting in these stocks becoming illiquid when market conditions become tough.
 
What is EMI?
EMI, short for Equated Monthly Instalments are the monthly payments that you fork out (principal plus interest) to the housing finance company from where you take a loan. Your EMI will depend on the amount of loan, the interest rate and the loan tenure.

What do you mean by a fixed and a flexible rate of interest on home loans?
A fixed rate of interest means the interest rate on your housing loan will remain fixed for the entire tenure of your loan. While flexible or floating means that your interest rate will vary depending on the movement of the Prime Lending rate (PLR) - the deciding factor. Know that the fixed rate is always slightly higher than the floating. But both have their plus and minuses. On an upswing you may gain if your loan is on a fixed rate but if its a floating you may lose out.

What are Hybrid loans?
A more or less new concept, Hybrid loans are those that are a mix of the fixed and the floating rates of interest. Now lets say you take a loan for a period of 10 years. Your finance company will leave it to you to pay your loan on a fixed rate or a floating rate of interest for 1, 2 or 3 years and switch over for the remaining tenure of the loan. This may allow you certain flexibility no doubt but you have to keep track of the shifts in the interest rate scenario and lock in accordingly.

On what basis are home loans interest rates fixed?
Interest rates fixed by housing finance companies are linked to the PLR or the Prime Lending Rates. These fluctuate in about 3 months time. And you can expect your EMI to change accordingly if you have taken loan on a floating rate. On the contrary if yours is at a fixed rate you are locked in at a pre-decided interest rate for the entire tenure of your loan.

What are the charges payable on a home loan?
• Processing fees
• Application fees

More to be continued in the next edition
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