If inflation is falling, why is RBI not cutting rate

If inflation is falling, why is RBI not cutting rate

Interest rate cuts have been a point of dissension between RBI and the government for some time now. With the economic growth still patchy, corporate earnings muted and retail inflation at a record low in July, the government has indicated that RBI must go ahead and cut interest rates to accelerate growth. Raghuram Rajan has been cautious in this regard. Notwithstanding a sharp fall in retail and wholesale inflation in July, the central bank governor said controlling inflation is a “work in progress” area for the RBI. With the next monetary policy announcement scheduled on September 29, we tell you why is RBI is not cutting rates rapidly. 

 

Select food prices up: While official data states that retail inflation— the price level of goods and services purchased by the final consumer—fell to multi-year low of 3.78% in July, the on the ground situation seems to be different. This is because prices of two important food items—onions and pulses, have shot up drastically. The price of onions, a staple vegetable in Indian households, is up at a two year-high. The price has risen more than 50% in many Indian cities. Prices of protein-rich pulses are also inching up to a two-year high, an Assocham report stated. 

 

Monsoon worries: After a better-than-expected rainfall in June, rains seem to be playing truant in the consecutive months. While June received excess rainfall, July witnessed deficient rainfall of 17%. August too is expected to bring in a 10% deficiency in rainfall, according to MeT department. On the back of this data, RBI, in its Annual Report for 2014-15 stated that “uncertainty surrounding the progress and distribution of the monsoon remains a risk to the outlook for both growth and inflation”. The central bank also suggested comprehensive food management techniques to be put in place to tackle dry spells. 

 

Convincing slide in inflation a must: At a recent banking event, Raghuram Rajan noted rather categorically that interest rate cuts must not be “goodies that the RBI gives out stingily after much public pleading”. He also added that RBI has to build credibility among the aam aadmi that it will act firmly against future price rises. For this purpose, a sustained period of low inflation is important. Furthermore, consistent low inflation will help lower the public’s inflationary expectations and also increase their real disposable income. This, according to Rajan, will be a victory against the inflation demon. 

 

Poor transmission of rates by banks: Criticizing banks for not passing on the benefit of rate cuts to the common man, RBI ‘s Annual report noted a difference between its policy and banks’ lending rates. “the willingness of banks to cut base rates – whereby they forego income on existing borrowers in order to attract more new business -is muted”, the report said. The RBI has reduced repo rate by 0.75% since January. A further cut in rate may well prove to be futile if banks do not pass transmit this change to the final consumer.

Happy Investing

Source:Reuters

Home Renovation - Where to Save and Where to Splurge

Home Renovation - Where to Save and Where to Splurge

 

Home renovation is a necessity for many, especially with the changing needs of life. Old houses need to be renovated to allow modern facilities and luxury. However, with renovation comes the context of investment. This is where owners need to be extremely careful. Over investment will lead to a financial loss and must be avoided at all times. It is important to know where to invest and the parts which must be avoided. Renovation should not only aim at a better living, but should also boost the property valuation in a huge way. The effect on the valuation amount should be considered while planning a renovation. Some suggestions regarding the areas to invest and the areas to avoid are being discussed below.

Invest while dealing with fundamental items

While renovating fundamental items like doors, windows and floors, it is best to go for quality. These installations hold the basic structure of house and are hard to replace. It is strongly advised to avoid cheaper alternatives in this regard. These items help to boost the valuation amount in a great way. Doors and windows of proper quality can be tagged as permanent installations. Thus, investment in the basics can be beneficial in the long run. There are certain accessories which can be installed while dealing with the fundamental units.

Ignore expensive items that can easily be replaced

It is better to ignore expensive items that can be replaced easily cheaper alternatives. Items such as bathroom tiles come in huge variety. There are some cheap alternatives available in the market which are identical to the quality ones. Using the cheaper alternatives will save a lot of money. These can easily be replaced. Thus, quality is not the deciding factor in this regard.

Avoid over-customisation

Owners have a tendency to over-customise their houses with colours and decorations. It is best to keep the feel neutral and classy. Over-customisation involves money without adding to the value of the property. As a matter of fact, over-customisation often leads to devaluation of a property. Thus, investing in excessive customisation should be avoided.

Spending on key points of the house is a good idea

While renovating a house, it is important to distribute the budget on the basis of importance. The key areas of the house demand more spending than the rest. The drawing room and the dining room are the areas which should not be ignored. These are the places which will get attention from visitors more. Thus, using quality items to decorate these rooms will yield a better result.

Adding accessories that help to save money in the long run

Adding accessories like the insulators will help the owners to save money in the long run. These are not expensive items to add. These additions also help to boost the valuation amount of the house.

Restoration of old items for reuse

It is better to restore old items than replacing them completely. However, there is a point beyond which, replacement is the only available alternative.

Avoid spending too much on bedroom decoration

The bedrooms are usually not meant for attending visitors. These rooms are limited to family usage. Thus excess expenditure on decorating the bedrooms should be avoided. Costly colours and wall hangings will effectively mean nothing in the context of the bedrooms. It is very important to identify the areas, where money can be saved.

 Happy Investing

Source:Yahoofinance

 

Indian economy offers hope as China struggles

Indian economy offers hope as China struggles

 

For investors worried about the health of emerging economies, India's gross domestic product data for April-June should supply some cheer on Monday - the country is expected to remain the fastest growing major economy for a second straight quarter.

The median estimate from a Reuters poll of economists put GDP annual growth at 7.4 percent in the quarter, just below 7.5 percent in January-March.

If the number is that high, it will be a boost for Prime Minister Narendra Modi, whose image as the country's economic saviour has taken a beating after his struggle to pass his legislative agenda.

But doubts persist over India's new way of calculating GDP, introduced early this year, even though the method gained an endorsement from the World Bank's chief economist. With the change method, India's growth topped that of China in the first quarter this year.

Still, India's robust headline growth does not square with the not-so-rosy ground reality.

"Growth momentum has improved in the last two years," said

Kaushik Das, an economist with Deutsche Bank. "But the pace of recovery has been frustratingly slow."

Monday's data is expected to fuel hopes in New Delhi of taking the baton of global growth as China's economic slowdown deepens.

NEW INVESTMENT COMMITMENTS

However, with an economy only one-fifth the size of China's, India is in no position to support the global economy as its northern neighbour has.

Blessed with a huge domestic market and a large cheap workforce, Asia's third-largest economy has an opportunity to get more investment.

Lured by its prospects, iPhone maker Foxconn this month announced a $5 billion investment in India.

The announcement came days after Sony Corp. shipped its first made-in-India television sets, and General Motors (GM.N) unveiled a plan to spend $1 billion to expand its main plant.

"It is India's moment," Junior Finance Minister Jayant Sinha said.

But very few believe it can seize the moment without making land, labour, bank and tax reforms.

Modi swept to power in last year's general election on a promise of speedier growth creating millions of manufacturing jobs.

But just 15 months after that electoral triumph, disenchantment has set in. Businesses are getting restless with slow progress in removing the hurdles that have stymied growth.

PARLIAMENTARY PARALYSIS

Political acrimony, meanwhile, has left parliament paralysed. The last session ended without passage of a single reform legislation.

Shilan Shah, India economist at Capital Economics, described the washout session as a "missed opportunity".

Yet India is on mend. Robust growth in indirect tax receipts points to a nascent revival in manufacturing sector. Foreign direct investments are up 30 percent from a year earlier.

However, the improvement in the economy is in large measure due to a crash in global commodity prices, which has cooled inflation and helped narrow the fiscal and current account deficits.

Sure, urban consumption demand is picking up, but rural consumers remain glum. With capacity utilisation rates showing no signs of improvement, firms are not in a hurry to invest in new plants and machinery.

Festering problem of bad loans, meanwhile, has impeded credit flow and delayed full transmission of interest rate cuts. The Reserve Bank of India has cut the policy repo rate by 75 basis points since January, but banks, in response, have lowered lending rates by just 30 basis points.

"Key structural reforms remain crucial for a sustained pickup in economic growth," analysts at Yes Bank said in a note.

Happy Investing

Source:Reuters 

 

Three reasons MNC stocks are no longer safe

Three reasons MNC stocks are no longer safe

Investors in India have always sought Multinational Companies (MNC) stocks. But, this is about to change. Until now, these stocks have been viewed as safe investments with assured returns. MNC stocks on the Bombay Stock Exchange (BSE) have consistently fared better than the BSE 500 Index. Over the last year alone, MNC stocks generated returns of 49%, compared to 16% for stocks on the BSE 500 Index , according to a report by Ambit Capital, an equity research firm. For a five-year horizon, the returns stood at 22% and 12%, respectively, the report said. But analysts at Ambit Capital believe that MNC stocks are no longer as ‘safe’ as they once were. 

Here’s why: 

1. Growth in business outside the listed company: To capture business opportunities with big payoffs, MNCs often take the subsidiary route. This means that a private company is incorporated by the MNC to net a higher profit opportunity. This company is a wholly owned subsidiary of the parent company. The local firm, which is the listed company in India, loses the opportunity to earn that profit. For example, Maruti Suzuki expanded its Gujarat plant in 2014 through a 100% Suzuki subsidiary. Maruti was to make payments to this subsidiary towards the cost of production. This means that Maruti only earns some money made from selling or distribution the cars manufactured at this plant. The profits from producing the car go to Suzuki, Maruti’s parent company, through the wholly owned subsidiary. As a result, the Indian listed company loses a part of its earnings and posts lower profits. 

2. Rising competition may erode MNC premium: MNC stocks have done well in the Indian stock market due to two factors: Their USP has been the ability to manage cash better and bring world-class technology and professional management methods to India. MNC stocks are, therefore, traded at a premium. In other words, these stocks are priced at a rate higher than they are worth since many investors are willing to pay more for them. As supply is less than the demand, the price is high. But now, with better governance, India could lower corruption and inflation, creating more efficient competition and a cleaner business environment, in which, Indian companies can thrive. This will lead to lower demand for MNC stocks, which will face competition from well-managed Indian companies. The premium attached to MNCs may erode due to this fall in investor demand. As a result, prices of these stocks may fall, along with the returns on investment. 

3. MNCs may draw cash from listed companies: Another major contributor to the fall in returns on MNC stocks could be the parent company making bigger withdrawals from the listed Indian company. Higher royalty payments demanded by the foreign parent, over a period of time, can lead to lower profits for the Indian listed company. This is the most common way for the parent company to pull out funds from the listed Indian firm. The former may decide on cash repatriation from the Indian company. This practice, though not common, is prevalent today. The parent company may also force the Indian listed company to enter into business transactions on unfavourable terms, where only the parent company benefits.

 Happy Investing

Source:Yahoofinance

7 Signs That Suggest it is Right Time to Sell the House

7 Signs That Suggest it is Right Time to Sell

Property market is a fluctuating one based on various factors. Most home owners prefer to upgrade their houses as their status gets upgraded. However, at a certain stage, shifting to a better house seems to be a better proposition. That is when selling the previous one comes into the picture. There are several other factors which may also lead to selling the current house. Some of these factors are being discussed below.

The house is getting too old

Like all things, age has an effect on properties as well. With age, maintenance becomes more expensive and complex. The average maintenance cost should act as a guide to trigger the selling alarm. When maintaining the house is getting too expensive, selling becomes the best choice. The emotional attachment with the house often tends to push for a renovation. However, paying a high renovation price on an old property is meaningless and wastage of money.

A bigger family needs a bigger house

With time, most families expand in size. A bigger family has a higher space requirement for a comfortable stay. Managing children and raising them properly is very tough in a small space. As the space seems to have shrunk, the thought of selling the house is very much correct. It is important to provide the children enough room to play and move around as it has a huge impact on the psychological balance. Thus, ignoring such needs is not recommended.

Poor condition of the house

Ignoring maintenance for a long time, would lead to a house in a very poor condition. Thinking of doing the long pending repairs may mean a huge bill. It is better to sell the property and get a new one. The entire calculation is based on the fine balance of financial pinch. It is for the owner to decide on the most economic route.

A disturbing neighbourhood          

Neighbourhood forms an integral part of the life even without being a part of the property. A happy and safe neighbourhood is worth more than a comfortable house in an area known for trouble. Safety, security and happiness are factors which cannot be compromised on. Parents with young kids are most choosy about neighbours. It is critical to provide the kids a congenial environment to grow into good human beings. An inappropriate neighbourhood would have a disastrous effect on the mental state of kids. The best way to get rid of this problem is by selling the property and moving to a better neighbourhood.

Local infrastructures and community life

Having proper schools and hospitals nearby is a huge advantage. A proper community life can make the entire experience much better. Properties closer to such amenities usually carry a higher price. It is often a dream location for most buyers, who wait till they are in a position to afford such properties. Selling an old property to help finance such a deal is a good idea and can be considered

A sudden rise in the property value of the area

Property valuations can rise for several factors. However, a rise is usually a glorious opportunity for owners to cash in. Most sudden rises are temporary and considered unnatural. These do not tend to last. It is strongly advised to consider selling the property while the appreciation still exists. It is a great way to gain a fortune out of the blue. Thus, keeping an eye on the property market even when not looking to sell or buy can help.

A tragedy too hard to forget

Life has its own surprises and not all of them are good ones. Sudden tragedies leave a mark too deep for people to forget. A house in which, such a tragedy took place, is too hard to live in. The bad memories tend to flow more. It is better to sell such a property and purchase a new one.

The above mentioned are some signs that suggest that it is time to sell the property.

 Happy Investing

Source:Yahoofinance

Buying A Car? Here Are 6 Important Questions You Must Answer First

Buying A Car? Here Are 6 Important Questions You Must Answer First

Buying a car can be a major financial decision. The choice of models and attractive financing options make the purchase seem easy and enticing. But are you making a financially smart decision?

Here are 6 questions you should answer to make sure your car purchase is a smart one.

1. Am I prepared for the financial burden of servicing a car loan?

Most of you will probably go for a car loan to fund your vehicle purchase. It’s important that you understand the financial pressure an EMI might put you under. This is all the more important if this is your first time taking a significant loan burden.

If you are paying other EMIs, then make sure that you are not paying more than 40% of your take home income towards all EMIs combined.

2.                   Am I prepared for the financial burden of maintaining my car?

Cars are nothing like a bike when it comes to servicing costs. The average cost of maintaining a car can be upwards of three times that of maintaining a bike, in terms of servicing costs. If you add fuel costs, then you are moving into a whole new territory.

Make sure you are ready for these costs which can increase your monthly expenses for travel by a factor of two, at least.

3.                   Would a second hand car make more sense?

Another key consideration for you would be used or new. In India, we tend to think of a car as an asset. A car is actually a liability, and you must try to make sure that it is not an expensive liability.

A second hand car can cost less when buying it, but more in terms of lifetime costs due to greater servicing requirements. Make sure you have done a thorough check when buying a second hand car. If you are going to use the car infrequently, a second hand car makes more sense.

4.                   Do I intend to sell my car some day?

If you are buying a new car, you must ask yourself if you intend to replace it at some point of time. Certain cars and brands have better resale value which comes in handy later.

This also implies that the more care you take of your car, the better value you will end up realizing from it when selling. Take care of your car documents as well, because lost documents can make selling a big hassle.

5.                   Will I get good service?

It makes a great deal of sense to buy from a brand that has a big service network and is known for providing honest and effective service for your car. The better the quality and availability of the service, better the value you will derive from your car.

A big service network takes care of scenarios where you might shift cities or when finding a service station for your car.

6.                   Am I considering every cost, including insurance?

The insurance and additional costs such as that for the music system you want to install or the parking aids, all need to be factored in. While insurance premium per year for a motorcycle would be less than Rs 1,500- Rs 2,000, insurance premium for a car can easily be Rs 7,000- Rs 10,000.

The car company might be selling the car with an installed music system but if you want something fancier, be prepared for those costs which can again reach into the 5 figure range. You can spruce up your car all you like, but be prepared for fixed or recurring costs as a result.

A couple of smart hacks :

– In case you find it tough to save for your car, you can invest small amounts in SIPs of mutual funds, to save up for your future car.

– Till you have your own car, you can use car rental services or app based cab services for important days when you need a car.

Happy Investing

2 Reasons Why Bank Fixed Deposits Alone Won’t Make You Rich

2 Reasons Why Bank Fixed Deposits Alone Won’t Make You Rich

There is no doubt that bank fixed deposits (FDs) are considered safe in that you will most likely get your money back. But did you know that bank FDs can negatively affect your savings over the long term?

#1: FDs give returns below inflation

The average inflation rate in India for the last 2 years (2012-2014) is 9.76%. Most FDs only give you about 8.5% interest before tax and around 7% after tax. This means, you are effectively losing money every year you invest your money in a FD.

#2: FDs are taxable, which further reduces the net amount you earn

Compared with equity mutual funds, long term returns from which are tax free, FD interest is taxable at your current tax slab. The higher your income, the lower your FD return will be.

That raises a question- “if bank fixed deposits are not a good way of allocating all my savings, how else should I invest my money?”

Invest in mutual funds! See the graph below for FD vs mutual fund comparison.

Return assumptions – FD @ 7%, Debt fund @ 8.5%, and equity fund @ 14%. Inflation assumed to be 8%.

As you can see, investing in Bank FDs will result in less money than you need to keep up with inflation. Debt mutual funds just about manages to beat inflation and equity mutual funds beat inflation with almost 3 times the inflation adjusted amount.

Mutual funds provide professional management of money, are tightly regulated and have proven their performance over time. Mutual funds are also very tax efficient and a little bit of planning can reduce tax on your mutual fund returns to zero (in case of equity mutual funds) or almost zero (in case of debt mutual funds).

Should I invest in equity or debt mutual fund?

Equity mutual funds are recommended for long term investing (more than 5 years) and debt funds for shorter durations.

But even investing in mutual funds can be daunting.

When you decide to start, you’ll be swamped with jargon like index funds, diversified, large cap, NAV, etc. It’s can be really confusing and most people stop there.

That’s exactly why a portfolio of select mutual funds is the best option

It’s built for people like you who want an absolutely simple, yet efficient, way to invest in mutual funds without having to worry about how their money is doing.

Additional Clarification

Based on the concerns some of our customers raised, here are some additional clarification.

But mutual funds are risky…

Yes. Mutual funds are subject to market risks. However, over the long term, equity mutual funds have shown to provide phenomenal returns.

Take a look at how equities have performed over the past several years backed by actual available data.

Even though equity is volatile, it has performed better than all other asset classes including FD, Gold, and PPF. No other asset class can grow your wealth as much as equities.

Since direct equity investing is riskier and time consuming, we recommend investing in equity mutual funds which is professionally managed by a fund manager.

If you want a less volatile option, you should choose debt mutual funds. They are less volatile and more tax efficient than FDs. While returns will be lower compared to equity, they still provide better returns than FD and also manages to beat inflation.

I want regular income…

If you want your investments to give you regular income, still debt funds are better than bank FDs due to the long term tax efficiency. You can keep withdrawing from your debt fund corpus or set up automatic withdrawals instead of relying on the monthly interest payout by the banks.

Happy Investing

Source:Scripbox

What’s Better? Investing In Equity Mutual Funds Or Directly In Stocks

What’s Better? Investing In Equity Mutual Funds Or Directly In Stocks

Equities have out-performed other investment asset classes over the long-term in India as well as globally. With growing maturity, retail Investors in India have begun to realise this and also take into stride the short-term volatility of this asset class. Better regulatory environment and improved corporate governance have also helped bring more investors to Equities.

Currently, retail equity investment in India is mostly channeled directly in stocks. Individual investors hold around 20% of the total equity market value, while mutual funds account for about 3%. This is almost the opposite of global trends where retail money is mostly professionally managed and mutual funds are the investment vehicle of choice for equities.

Why should India be different? Does direct investing provide any benefit over investing in equity mutual funds?

To answer this question, we conducted a study to compare the historical performance of Indian equity funds to that of the stock market over the last 10 years. We chose 25 equity mutual funds based on size (highest assets under management) to represent the entire equity mutual fund industry in each year. We compared the median yearly return for these funds to the yearly returns of the Nifty. Here’s what we found:

The analysis shows that

• Equities in general created wealth for investors over 10 years
• The return provided by both mutual funds and the market varied significantly from year to year
• In each year, there were significant differences in returns between the two
• Equity mutual funds outperformed the Nifty in 7 of the 10 years
• The cumulative annualised return of Equity mutual funds over 10 years was significantly higher than the Nifty.

The conclusion: Equity mutual funds in India have been relatively consistent in outperforming the broader stock market.

This not surprising.

Mutual funds are specifically designed as well diversified investment portfolios. Professional money managers who ensure rigorous investment discipline manage these funds. The fund managers are generally able to devote more time and resources to monitoring investments, than an individual could, and tend to react less to short term investor sentiment.

We are convinced that Equity Mutual Funds offer the best option for retail investors to participate in Equities. With a robust institutional and regulatory framework in place, we expect that equity mutual funds will continue to maintain this position in the coming years.

An interesting aspect which we discovered during this research is that there was considerable variation in the composition of the top 25 equity mutual funds over the 10 years reviewed in our study. On average, approximately one fourth of the top 25 funds were replaced by new funds every year. The Indian mutual fund industry is continuously transforming and accordingly, close monitoring and evaluation of the equity mutual funds on offer is essential to increase the chances of better performance.

Periodic evaluation and rebalancing has long been considered the secret ingredient of better investing. That’s why, one of key features is the constant monitoring of fund performances and the discipline to change our selected funds at periodic intervals if required.

Happy Investing

Source:Scripbox

6 Investing Lessons From The Richest Man In The World- Warren Buffett

6 Investing Lessons From The Richest Man In The World- Warren Buffett

Warren Buffet, also known as the oracle of Omaha, is no stranger to the world of investing. There’s a lot to learn from the most successful (and did we also mention, the richest) man in the world of investing.

Here are six lessons from Warren Buffett that you can use to invest better.

#1: “If you buy things you don’t need, you will soon sell things you need.”

You can make more money not only by investing or taking up a second job, but also by resisting the temptation to go out and just splurge. As the saying goes – a penny saved is a penny earned.

Key Takeaway: To be a successful investor, you need to use due diligence. Spending wisely is not about being miserly, but about being smart. Invest in assets that give you good returns over the long term- one that helps you secure your financial future.

#2: “Price is what you pay. Value is what you get.”

Most of us know this- the money we pay for something and the value we get out of it, most of the time, does not have a correlation. You could possibly buy a posh apartment for 1 crore rupees. But staying in the apartment does not guarantee a high quality of life- does it?

When it comes to investing, especially the stock markets, the price of a stock is mostly governed by market sentiments and not necessarily by the profitability or value of the company itself. Warren buffet suggests to buy stocks when the price you have to pay for the stock is less than the intrinsic value of it. He says, “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”

Key takeaway: Instead of trying to time the market and extract every rupee profit you can possibly get out of your investment, invest in assets that will generate inflation-beating long term returns and hold on it for a long time (In buffet terms, forever).

#3: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Warren Buffet recommends investing in undervalued stock with great potential and holding on to them forever. In-line with this philosophy (which undoubtedly worked so well, and still continues to work), buying shares of a wonderful company at a fair price is much better than buying a mediocre company at a cheap/bargain price.

Buffet notes that over the long term, mediocre companies gives much lesser returns compared to wonderful companies, so much so that the bargain price for which you bought the mediocre company stock does not seem like a bargain anymore.

Key takeaway: Don’t try and time the market or buy into NFO mutual funds because the NAV is low. Invest whenever you have the money and hold it for as long as possible.

#4: Be loss-averse

Majority of investor’s measure performance solely based on return. Buffett advices that you should not strive to make every dollar a potential profit which involves too much risk. Instead you should be loss-averse. Preserving your capital should be your top goal. By avoiding losses you’ll naturally be inclined towards investments with assured returns.

As Warren Buffet puts it, “Rule #1, never lose money. Rule #2, never forget Rule #1.”

The takeaway: While Buffet talks about safety of capital, he’s referring to stock investing where you don’t become greedy and go after too-good-to-be-true stocks. Instead, you focus on stocks that are undervalued and are of companies that you understand and has long-term potential.

Many investors misunderstand this as a recommendation for investing only in Bank FDs or equivalent assets which are mostly considered safe. Investing in Bank FDs is almost always guaranteed to be a losing proposition over the long term since after-tax, the returns you get annualized are below inflation rate.

#5: Be tax savvy

Like all billionaires, Buffett too is tax savvy.

Be knowledgeable about tax laws and use them to your advantage. Before you invest, make sure you understand the tax implications of your investment.

For e.g. while investing in Bank FDs might give you 9% returns, the interest is actually taxable as per your tax-bracket. The real return, if you are in the 30% tax-bracket, will fall to just a little above 6%. Now, that’s below inflation rate and you are effectively losing money the longer you invest in it.

The takeaway: Understand the tax implications of your investment fully before making a choice.

#6: Limit what you borrow

More is not always good- case in point, loans and credit card debt.

With daily offers from ecommerce companies, it might be tempting to buy that latest mobile phone on an EM. Considering the fact that the phone you bought for EMI (plus the processing fee which is in-directly the interest you pay for the EMI facility), and it loses its value over time (most cases, the moment you buy it), it is best if you limit your borrowing.

The takeaway: Borrow only when it’s absolutely necessary. When borrowing, make sure you understand all the fees associated with it. Sometimes, the real cost of bowing money will be hidden as miscellaneous charges like processing fee.

Investing is easier than you think. Take control of your money and start investing like a professional. 

Happy Investing

Source:Moneycontrol.com

No More Excuses! 11 Tax-Saving Options That Save Tax And Grow Your Wealth

No More Excuses! 11 Tax-Saving Options That Save Tax And Grow Your Wealth

“In this world nothing can be said to be certain, except death and taxes”- Benjamin Franklin.

If you are reading this, you are likely to be someone whose income exceeds the threshold of Rs 2.5 lakhs for paying taxes. There are some legitimate ways of saving taxes and the good thing is that most of them also help you grow your wealth. These options usually have a lock in period and vary in the nature and amount of return they provide. You must also remember that each of these alternatives also serve specific purposes and tax saving is not the purpose but an ancillary benefit of that.

Comparing the different options

Summary: The best way to look at the various 80C investment options is to see what is pre-determined and what is optional. EPF, Home Loan repayment and Tuition Fees are pre-determined. Add them up and see how much of your 1.5 lakh limit is utilised. Use the below table to decide where you want to invest the rest.

Investment	Lock-in Period	Pre-Tax Returns	Tax Applicable
ELSS	3 Years	14-16%	No tax
5 Year Bank FD	5 Years	9.50%	Interest is taxable
PPF	15 Years	8.50%	No tax
NSC	5 or 10 Years	8.50%	Interest is taxable
Life Insurance	5 Years	0-6%	No tax

Based on your risk appetite and expected returns, you can choose a product that’s best suited for your situation.

What do werecommend?

• ELSS Mutual Funds – For people who want superior returns and also have higher risk appetite
• PPF – For people who want returns at par with inflation and have very low risk appetite

For a more detailed understanding of the most popular tax saving investment options, please read our detailed review below.

ELSS Tax Saving Mutual Funds

ELSS or Equity Linked Saving Schemes, are a kind of equity linked mutual funds.  As they invest in equity or stocks, ELSS funds have the ability to deliver superior returns – 14-16% over the long term. That’s a full 6-8% above inflation.This return is not guaranteed though but historical evidence suggest that these returns are achievable over the long term.

ELSS funds have a lock in period of only 3 years – the lowest amongst the options available. The return from ELSS funds is also tax free.

You can investup toRs 150,000 in ELSS funds either as a lump sum or on a monthly basis (SIP) thereby spreading your investments over the course of the year. The latter also helps in reducing volatility that’s typical of equity linked products.

You can invest in these mutual funds through an advisor or an online portal like Scripbox.

Public Provident Fund

PPF is a good option if you are looking for an option with certain returns.

YourPPF investments earns interest at a rate announced every year – currently 8.7%. PPF return is therefore mostly at par with inflation. However, it is tax-free and you can do a lump sum or small regular investments.

The duration of a PPF account is 15 years which is extendable by 5 years at a time. You cannot withdraw money from your PPF account except under certain conditions but not before 5 years.

You can invest in PPF through a bank or Post Office. Ability to invest online is limited.

5 Year Bank FDs

This is a variant of the regular Bank FD with a 5 year lock in. They offer slightly higher interest rates compared to normal FDs (0.25-0.5% higher) but does not offer liquidity option- even premature withdrawal with penalty is not possible.

The amount you can invest is limited to Rs 1,50,000. The interest you earn on your 5 year bank FD is fully-taxable and you will have to pay taxes on a yearly basis for the interest you earn for that period. TDS typically collected by banks is only 10% (20% in case you have not submitted your PAN) and if you happen to be in the 20 or 30% tax bracket, you need to pay the remaining interest while filing your IT returns.

Post-tax, 5 year bank FDs are not particularly attractive- especially for people in the 20 and 30% tax brackets since the post-tax returns (6-7%) are typically lower than other tax saving investment options.

National Savings Certificate (NSC)

NSC interest rates are fixed in April every year. The current rate is 8.5% for 5 year lock-in NSCs, and 8.8% for 10 year lock-in NSCs.

The interest accumulated is fully taxable. However, one key difference here is that the interest amount is not paid out to the investor. Instead, it’s re-invested in NSC and therefore can be considered as your investment in NSC for the subsequent year. Needless to say, this is complex.

Investments up toRs 150,000 are eligible. You can invest in NSC via your local post office.

Life InsurancePremium

This was almost the default tax saving option for years However, over the last few years, most informed investors have learnt the perils of choosing this option

There are 2 kinds of Life Insurance Policies:

• Pure risk also called term life which ensure a risk to the life of the insured
• Risk+ investment: which pay you back money over time

While pure risk life insurance is something everyone with a dependant must have, it’s not an investment. Life insurance is an expense- something you pay to ensure that your dependents are not left stranded should something unfortunate happen to you. Term life insurance is cheap and for a sum of about Rs 10000, you can purchase a cover of Rs 1 Cr

The returns from and costs of investment oriented insurance policies are not transparent and usually not attractive. We won’t go into length on this topic but suffice to say that you should not consider Life Insurance as a tax saving investment option.

National Pension Scheme

National Pension Scheme is a lot like investing in mutual funds with its Safe, moderate and Risky options. The returns are not guaranteed.

You cannot withdraw until 60 and the corpus amount must necessarily be invested in an Annuity. The withdrawals are also taxable.

Contributions up toRs 150,000 are eligible for deduction under Sec 80C. You can invest via the specified list of NPS fund managers with points of presence operated through banks.

However, given the restrictions that come with NPS, it’s not a recommended option.

Pension Funds

Pension funds are designed to provide you an income stream post retirement. They come in two flavours: Deferred Annuity and Immediate Annuity.

For deferred annuity plan, you invest annually until your retirement. Once you reach your retirement, you have can withdraw up to 60% of your accumulated corpus and have to re-invest the remaining in an annuity fund which will give you a monthly pension.

When it comes to immediate annuity plans, you invest a bulk amount one-time and get monthly pension from the next month itself. You would typically use these to invest your retirement corpus.

Pension funds are not very popular because of the sub-par returns (around 6%) that they give and the restriction they come with. That’s less than India’s inflation rate and not even half of what ELSS funds provide in the long run.

Pension funds are offered by a number of providers. Contributions up toRs 150,000 are eligible for deduction.

Senior citizens savings scheme

The senior citizens savings scheme is a product aimed at senior citizens to save tax. It can only be opened by people who are above 60 years old.

There is a maximum cap of 15 lakhs and a lock-in period of 5 years. You may withdraw the money before subject to penalty as follows

• More than 1 year but less than 2 years – 1.5% of deposit amount
• More than 1 year but before maturity – 1 % of deposit amount

This scheme is offered via the post office. Investments up toRs 150,000 are eligible.

EPF (Employee Provident Fund)

For salaried employees, this is not necessarily an optional thing. You will need to follow your company’s policy with some leeway available. However, a lot of people forget that the amount contributed to EPF is also eligible for 80C deduction.

EPF is typically deducted from your salary every month and it includes 12% of your Basic salary + DA up to a maximum limit of INR 6500 per month (inclusive of the optional matching employer contribution).

You can withdraw EPF when you change jobs. However, your accrued amount will be taxed as other income. If you withdraw EPF after 5 years, you do not attract any tax. Withdrawal after 5 years is based on qualifying criteria.

The interest rate varies every year (for e.g. interest rate in 2010-11, was 9.5%, while in the previous five years it was 8.5%). For 2014-15, the interest rate is fixed at 8.5%.

Other Tax Saving Investments & Expenses

Apart from voluntary contributions we make, there might be some forced savings/ expenses that already qualify for tax saving.

Tuition Fees for Children: Tuition fees for up to 2 children are covered under section 80C. Please note that it convers tuition fees only and not development fees or donations.

Home Loan Principal Repayment: You are eligible for tax exemption for the repayment you make towards your home loan principal. Do note that the interest component is not eligible for tax benefits.

Happy Investing

Source:Scripbox

Save tax, earn high interest with zero TDS by investing in NSCs

Save tax, earn high interest with zero TDS by investing in NSCs

Investment in NSC is 100% safe and qualifies for tax saving option under Section 80C. The most lucrative aspect is Interest earned on NSC also qualifies for Section 80 tax benefit.

Do you know that in this era of falling Interest Rates, National Saving Certificates offers a high Interest rate up to 8.8% with Zero TDS on it? Also investment in NSC is 100% safe and qualifies for tax saving option under Section 80C. The most lucrative aspect is Interest earned on NSC also qualifies for Section 80 tax benefit. Here is everything about NSC, right from how to invest in NSC and its Tax treatment

What is National Savings Certificate (NSC)?

National Savings Certificate or NSC is an investment option introduced by the Government of India in order to motivate individuals to indulge saving habits and channelize in the correct direction. NSC is issued via Post Offices as this agency makes it accessible to the common people. The sum total created through these deposits is utilized for the country’s growth and development.

It works like FDR wherein individual invests certain sum of money for 6 years or 10 years and he gets an interest each year. This interest gets re-invested and thus the individual gets interest on interest.

NSC’s in India is considered as the ‘highly secured’ and reliable investments as it not only provides an avenue for safe investment but also offers tax benefits u/s 80C at the time of

Investment

During the life of investment

Therefore, there is no such restriction for investment in NSC.

Who can buy NSC?

a. Any individual whether singly or jointly along with other adult can buy NSC

b. A guardian or parent on his or her minor’s behalf can buy NSC

Who are not eligible to buy NSC?

a. Hindu Undivided Families (HUF’s) as well as Trusts cannot invest in NSC

b. Non-Resident Indians (NRI’s) are also not eligible to buy NSC. On the other hand, if an individual was an Indian Resident while buying NSC and becomes an NRI during maturity period, then he or she is eligible to hold this certificate till its maturity

Where to buy NSC?

NSC’s are certificates that are issued by the Department of Post, Govt of India and are accessible at almost all the post offices of the country. The Certificate may be relocated from the post office to the other post office provided you make an application in approved format at any of the two offices.

The payments for purchasing of NSC can be done to the P.O. in any one of the following modes mentioned underneath:

1. Cash

2. By putting forward an application for fund withdrawal from the P.O. Savings Bank Account

3. Cheque, Demand Draft or Pay Order drawn in goodwill of the Postmaster

4. By giving away an old matured certificate, thereby stating at the back of the certificate given away ‘Received payment through issue of fresh certificate, vide application attached

The Postmaster must issue new Certificate of NSC on that spot if possible or must issue provisional receipt to the buyer, which may later on be exchanged with NSC at the time of issue.

Types of NSC and their Rate of interest

National Saving Certificates or NSC offers a very good return on investments. There are currently two types of NSC available.

These are NSC VIII issue and NSC IX issue.

1. While the NSC VIII issue offers 8.50% of interest, investors get a hefty 8.80% of interest with NSC IX issue.

2. With NSC VIII issue, the maturity value of certificate of Rs 100 will be Rs 151.62 after 5 years.

3. With NSC IX issue, the maturity value of certificate of Rs 100 will be Rs 234. 35 after 10 years.

4. It is important to note that in case of NSC the interest is compounded half-yearly and therefore interest is reinvested.

Various Kinds of NSC

Three types of NSC certificates are there which are mentioned below:

1. Single holder Kind Certificate: This NSC is subjected to the holder himself / herself or maybe on minor’s behalf

2. Joint A Kind Certificate: This NSC is issued subjected for 2 adults and allocated to both holders mutually

3. Joint B Kind Certificate: This NSC is subjected jointly for 2 adults and allocated to either of them

The minimum sum that can be invested in NSC is Rs 100 and moreover there is no maximum limit on the sum that ought to be invested on the same.

What to do if NSC is lost?

If NSC is misplaced, stolen, smashed, mutilated or defaced, the lawful owner of the certificate can easily apply for the issue of a duplicate certificate together with the compulsory information in Form NC-29 to the Post Office where the necessary certificate is already registered or some other Post Office which will eventually move the appeal to the Post Office where that particular certificate has been issued.

Such type of application for issuance of duplicate certificate must be accompanied with the statement mentioning the required particulars like number, sum total, date of the certificate and the circumstance attending such type of loss, theft, destruction or mutilation. Apart from this, if the officer-in-charge of the Post Office is satisfied regarding the reason of loss or destruction of NSC certificate, he or she must issue a duplicate NSC certificate to the candidate possessing an indemnity bond in prescribed form with just one or more approved sureties or with bank guarantee.  Just a fee of Rs 5 will be charged from them for issuing a duplicate certificate.

Premature encashment of NSC

Premature encashment/redemption of NSC certificate is not allowed except in the cases mentioned below.

· On the demise of the holder or holders if it is the case of joint holders

· On Forfeiture by a guarantee being Gazetted Government Officer when that guarantee is in the compliance with the rules

· When the order comes by Court of Law

If the NSC Certificate is encased for the reasons mentioned above within one-year time from the issue date, the encashment must be made at the face value devoid of any interest. On the other hand, if encashment is made after one year, then interest will be payable in these cases but this encashment will be done at discount.

Tax Treatment of NSC

The deposit of up to Rs 1.50 lakhs in NSC will qualify for deduction u/s 80C. Besides, accrued interest on NSC also qualifies for deduction under the same section.

Interest on NSC is also taxable. However, since this scheme is cumulative (for instance, interest amount is not paid to the investor and it keeps on accumulating); every year the amount of interest is considered to be again invested in NSC. Since, it is deemed to be reinvested, the certificate qualifies for new deduction u/s 80C, thereby making it tax-free.

 Only the interest of the final year when the NSC matures does not acquire tax deduction since it does not get reinvested, instead it is paid to investor along with the interest amount of earlier years plus the capital amount.

Happy Investing 

 

E-Registration: Major step towards transparency in realty

E-Registration: Major step towards transparency in realty



E-registration has simplified the process for providing evidence of titles and facilitating transactions, and will go a long way in preventing the unlawful disposal of land.

The most frequently-occurring type of disagreement in Indian real estate is land dispute. Cases range from of illicit land grabbing and illegal land sales to instances of purchase of land where no actual purchase has taken place – to name just a few. The real estate market has historically been plagued by such issues, and the current government’s initiative of facilitating e-registration to streamline the registration of immovable properties is an extremely progressive move which has been universally welcomed for its transparency and ease of use. E-registration has simplified the process for providing evidence of titles and facilitating transactions, and will go a long way in preventing the unlawful disposal of land. This online registration system effectively put paid to the various underlying problems and loopholes in the traditional land registration process, based on the Land Registration Act of 1925, which typically involves Powers of Attorney, sale or mortgage of land and transfer of property under rent. The Land Registration Act of 2002 introduced this new system using verified electronic signatures to transfer and register immovable property online. The All-Important Tree Of Ownership If a piece of land has been passed on for generations or has seen multiple owners over time, a proper hierarchy of land holding needs to be available so that current buyers or tenants can ascertain the exact value of land or the rent according to current market values. This is possible only when there is complete transparency in document verification and full disclosure of details about the property - gross carpet area, number of rooms, foundation details and wiring blueprints. Nothing should be hidden from the future investor/buyer. E-registration has provided a much-needed level of transparency to property dealings. The Role Of A Broker After e-Registration Does e-registration also negate the need for a real estate broker? This is a fair question. While all details of the property may be available online, this may not be enough information to make a firm investment decision. The question of whether a particular property, regardless of how many details are available online, makes good investment sense in light of many other options can only be answered by a knowledgeable consultant. The fees a broker will charge are definitely reduced by e-Registration, but a broker is still required – not only to provide inputs on the advisability of the investment proposition, but to mediate between the involved parties and help negotiate the price. E-registration Procedure In Urban And Rural Areas Since property in both urban and rural areas property comes under the jurisdiction of the same State Government and both types of areas are managed under a Tehsil (aka taluka or mandal) the e-registration of property (housing or commercial rental) is fairly similar. The process will only differ if the land is vacant or occupied (built upon). For vacant land, valuation is done at current market price while for occupied land (with built-up properties like shops, flats, cottages, etc.) it is done on the market price as well as the gross investment utilized by a building. For instance, a single-storied house will be valued higher than a multi-storied house if it is a prime location. Otherwise, the latter commands a higher valuation. Also, leases of immovable property in urban areas command a higher stamp duty (6%), while in rural areas it is lower (5%). Benefits of Land e-Registration • The usual resource challenges at Registrar offices are reduced drastically, allowing them to tend to more sensitive matters like disputes. • Consumer pays a registration amount which is relatively affordable. • There is no need to visit different offices to register a property • The details and documents pertaining to land records can be accessed online at any time. • Transparency in the registration process increases significantly, thereby also rationalizing broker fees and negating the need for bribes to officials • The software calculate the stamp duty on the basis of the stored data, and the duty can be paid online • A state-of-the-art system will reveal the current market price of any land located at any location within the State How To e-Register Land The procedure of doing e-Registration of land is simple. The land registration and application form can be either downloaded online or obtained from the concerned authority’s office in the state. After the verification of form details and the related documents of the concerned person, the land is registered in a matter of days, and this marks the completion of the registration process and establishing the full-accredit ownership of the property. Safety Of E-registration Of Land E-registration is pretty safe. Hackers can do nothing to compromise documentation, as they do not have access to the papers owners hold relating to their land, such as transfer of Power of Attorney, land purchase deed or wills of deceased person who were entrusted with the protection of the property. Also, since most government servers are SSL encrypted with multiple layers of security and a personalized login system, it is not easy to hack consumer’s details. However, to check the authenticity of the buyers and sellers, it is always best to consult a professional real estate consultant who has proper knowledge about the sector. Efficient background research is always the crux of any good and profitable land deal. It is important to establish that a land’s claim is retained by the owner, and that there is no scope for the land mafia or government to contest it. Also, before signing a deal, it is always advisable to visit the site at least twice (giving a gap of a few months) in the presence of the seller or buyer in order to verify overall authenticity. Where Is E-Registration Already Being Used? States such as Kerala, Orissa, West Bengal, Karnataka, Tamil Nadu, Rajasthan, Jharkhand, Sikkim, New Delhi, Maharashtra, Madhya Pradesh, Punjab and Chhattisgarh have the facility in force since as long as the 1990s. Such states have developed the Common Services Centre (CSC) Scheme where all registrations are verified. These CSCs cover almost all the rural and urban areas. What About Old Property? For older property, the process is simple. Consumer need to register the following documents: 1. Power of Attorney (sale, transfer, hold or deconstruct). 2. Non-testamentary instruments which purport directly to or operate to create, declare or assign any right, title or interest of the value of one hundred rupees and upwards, to any kind of immovable property (inherited land). 3. Non-testamentary instruments which acknowledge full receipt of payment of any consideration on the transfer of ownership to a new owner. What Do Real Estate Experts Say? • Real estate experts are in favour of registration of land, especially e-registration, since it helps them to focus on larger projects. • Since e-registration adds transparency to the nation’s real estate, it also adds credibility to each real estate agents’ and expert’s credentials. • It helps to secure deals that will not land up in legal troubles, since non-registration can lead to significant legal trouble. Overall, one should always register (or e-register) their land dealings and purchases to add a credible name to the entire holding or immovable property comprised therein at that space of land. In cases where there is a need to confer any kind of power - especially in patriarchal or commercial holdings - land registration helps the government to ascertain the rightful owner and avoid family feuds. Also, e-registration helps in quickly producing evidence of any transaction that affects the property or confers special powers to an individual or firm. It pays to remember that a land owner does not exist in the eyes of the government unless the land has been registered. To avoid the risk of personal land being impounded, it makes sense to register all the land documents online today at the respective State’s online website.

Happy Investing