Thursday, July 14, 2011
UTI MICRO PENSION
UTI Mutual Fund today tied up with Srei Sahaj e-village to sell its micro-pension product in the rural regions.
Srei Sahaj e-village is a subsidiary of Srei Infrastructure Finance, which provides e-governance programmes to the Centre and states.
Srei Sahaj e-village has more than 23,000 community service centers across the six states of Assam, Bihar, Orissa, Tamil Nadu, Uttar Pradesh and Bengal.
“This will provide us with a huge distribution network for selling our micro-pension product — the UTI Retirement Benefit Pension Fund.
Rural people associated with Srei Sahaj will now be able to contribute as low as Rs 200 a month in UTI Retirement Benefit Pension plan to get a monthly pension when they attain 58 years,” said Jaideep Bhattacharya, group president and chief marketing officer, UTI Asset Management Company.
At present, only two mutual funds — UTI and Templeton India — are allowed to sell retirement plans.
Wednesday, July 13, 2011
Infosys forecast a worry
Infosys, the country’s second-largest software exporter, warned that it faces a volatile global economy and a possible slowdown in client spending.
The company narrowly missed expectations with a 15.4 per cent rise in first-quarter profit.
The bourses were unimpressed with the software company’s muted guidance, especially a flat dollar forecast; a conservative earnings-per-share estimate and its share price slipped 6 per cent soon after the numbers were announced.
Infosys posted a net profit of Rs 1,722 crore for the three months ended June 30, 2011, a 15.7 per cent increase year-on-year.
However, sequentially the net profit declined 5.3 per cent as higher wage costs impacted the bottom line.
Revenues for the quarter stood at Rs 7,485 crore, a year-on-year growth of 20.8 per cent and a quarter-on-quarter growth of 3.2 per cent.
The company’s muted outlook follows expectations that clients in the US and Europe may spend less.
Chief operating officer S.D. Shibulal, who will take over as CEO in August, said the environment warranted some caution. Customers in Europe are delaying decision making, he said.
The market’s reaction could have been exacerbated as it was looking forward to a “solid quarter” after the company’s lackluster performance in the March quarter.
The company has not revised its guidance in dollar terms for the whole year, which has also disappointed the markets.
In 2011-12, Infosys expects revenues to be in the range of $7.13-7.25 billion, a growth of 18-20 per cent.
Analysts had expected a full-year revenue growth of 20 per cent.
For the quarter ending September 30, the company has said revenues (under IFRS consolidated) are expected to be between Rs 7,699 crore and Rs 7,810 crore, a growth of 10.8-12.4 per cent.
EPS was seen in the range of Rs 29.64 and Rs 30.15.
As on June 30, 2011, cash and cash equivalents, including investments in available-for-sale financial assets and certificates of deposits, was Rs 16,969 crore against Rs 16,005 in June 2010.
The company added 26 new customers and hired 2,740 people on a net basis.
It expects to hire 12,000 employees on a gross basis in the three months till September 30, 2011.
Infosys’s client acquisition numbers are the lowest in four years in the reporting quarter and its costs are increasing because it is paying higher wages to retain talent.
A CLSA report said, “Street hopes now rest on a big out-performance in September quarter and we would advise caution here.”
The management expects margins in the second quarter to remain flat.
The Infosys share ended 4.27 per cent lower at Rs 2,794.25 on the BSE yesterday from its previous closing day.
TPA ban
Insurance regulator IRDA is planing to ban the third party administrators (TPA) from operating as intermediaries in the government-sponsored health insurance schemes.
Tuesday, July 12, 2011
LLPs get bourse ticket
The Securities and Exchange Board of India (Sebi) today announced that limited liability partnerships (LLPs) can become members of stock exchanges.
In other words, LLPs can register as stock brokers. The market regulator made this relaxation after receiving various requests from stock exchanges. The capital market watchdog said stock exchanges had been permitted to admit LLPs as members to enable the latter to get registration as stock brokers.
LLP is a business structure coming between a partnership firm and a corporate body.
The market regulator added that the Securities Contract Regulation Rules, 1956 (SCRR) do not explicitly mention LLPs as the Limited Liability Partnership Act, 2008 was a subsequent development.
According to the LLP Act, LLP is a body corporate.
SCRR rules provide that limited liability companies (LLC) and partnership firms are eligible to be admitted as members of stock exchanges.
“In this context, it may be stated that LLPs are akin to LLCs and partnership firms,’’ Sebi said.
None can avail exemption from filing income tax return
The exemption to file return for income up to 5 lakh looks good on paper, but nobody will be able to fulfill the conditions Your Sweet Money Observes.
The Central Board of Direct Taxes (CBDT) has made millions of Indians smile by announcing that salaried taxpayers with an annual income of up to Rs 5 lakh need not file their returns.
They won't have to spend time, effort and money in filing their tax returns. Or so they think. Given the stiff conditions, it' unlikely that anyone will be able to avail of the concession.
Here's why the CBDT's proposal is just a clever ploy, a theoretical relief that nobody will get.
According to the notification, a salaried person is exempt from filing his return for the financial year 2010-11 if he fulfills the following conditions:
· Income after allowable deductions is up to Rs 5 lakh
· Income is only from salary and savings bank interest
· Salary is from one employer
· Savings bank interest is below 10,000.
· Tax on bank interest is paid and included in From 16
The announcement comes at a time when Form 16 have already been prepared and issued to taxpayers. Will it be possible to make the necessary changes in the Form 16 at this late stage?
The second requirement that the income should be only from salary and savings bank interest is patently illogical. How many people who earn more than Rs 3-4 lakh a year will not have income from fixed deposits, mutual funds, stock trading, gold and property?
You invested in fixed deposits or NSCs to save tax or received dividend from your ELSS fund during the year, you don't make the cut for the exemption. Have you given your house on rent for even one month? Sorry, you will have to file returns.
Anybody who bought infrastructure bonds to claim deduction under Sec 80CCF is also not eligible. Only a person who has no tax-saving investments and lets all his money idle in a bank will be eligible.
Let us assume that there is indeed somebody who has no such investments and, therefore, no income other than from his salary and the interest on the bank account.
The second requirement that the income should be only from salary and savings bank interest is patently illogical. How many people who earn more than Rs 3-4 lakh a year will not have income from fixed deposits, mutual funds, stock trading, gold and property?
You invested in fixed deposits or NSCs to save tax or received dividend from your ELSS fund during the year, you don't make the cut for the exemption. Have you given your house on rent for even one month? Sorry, you will have to file returns.
Anybody who bought infrastructure bonds to claim deduction under Sec 80CCF is also not eligible. Only a person who has no tax-saving investments and lets all his money idle in a bank will be eligible.
Let us assume that there is indeed somebody who has no such investments and, therefore, no income other than from his salary and the interest on the bank account.
Even then, he may not be able to fulfill the conditions for exemption.
The notification says that the tax due on the interest income should have been paid and the income and the tax should be mentioned in Form 16 from the employer. The interest on bank account is credited on a half-yearly basis.
The interest from October to March gets credited after March 31. You need to be a financial expert to correctly estimate the tax due on this income and pay the right amount.
That's not all. You also need to provide these details to your employer in time for the accounts division to mention them in your Form 16.
A taxpayer's quest for filing nirvana doesn't end here. If he has changed jobs during the year, a taxpayer won't be exempt from filing his tax returns.
That's not all. You also need to provide these details to your employer in time for the accounts division to mention them in your Form 16.
A taxpayer's quest for filing nirvana doesn't end here. If he has changed jobs during the year, a taxpayer won't be exempt from filing his tax returns.
Given the high employee turnover rate in certain industries, such as software and IT-enabled services, very few people in these sectors will be able to claim exemption.
Even if the employer agrees to include these details in the Form 16, there will be other deductions that won't be mentioned in Form 16. For instance, any donation to charitable organisations is not mentioned in Form 16.
Even if the employer agrees to include these details in the Form 16, there will be other deductions that won't be mentioned in Form 16. For instance, any donation to charitable organisations is not mentioned in Form 16.
It is up to the taxpayer to claim deduction for the donation and this can only be done by filing the return.
Similarly, if you have carried forward losses or have a refund, you won't be able to do so if you don't file.
Remember, if you don't file your return, you also forego your right to modify your return to include any deduction you may have missed.
Similarly, if you have carried forward losses or have a refund, you won't be able to do so if you don't file.
Remember, if you don't file your return, you also forego your right to modify your return to include any deduction you may have missed.
Only taxpayers who file their return by the due date can file a revised return. Given the plethora of paperwork required to avail of the exemption and the possible repercussions of not filing your return, it seems that spending 30-40 minutes online is a far simpler option.
Monday, July 11, 2011
Some tips to grow your money the safe way
Plain-vanilla fixed income assets can pump up the savings of not only the retired, but also those of young professionals.
You won’t catch them dead near the stock market. They are very happy putting away their hard-earned savings in fixed deposits, public provident funds, company deposits and so on. And not all of them are retired individuals who do not want the uncertainty of stocks ruining the fun of their sunset years.
There are many young executives, who don’t want to take the extra risk of investing in stocks. While a retired individual wants a monthly income to meet his day-to-day expenses, the working individual looks at building a fixed-income corpus to save for a rainy day or emergencies which may come his way.
According to India Wealth Report 2010 by Karvy Private Wealth, as much as 66% of Indian wealth, which is around Rs 48 lakh crore, is in fixed income assets.
Compared to this, global investors invested only 58% of their individual wealth in debt instruments during the same period.
Fixed income investors are generally risk-averse, want safety of principal and do not believe in churning their portfolios too much. They also want their investments to be as simple as possible.
There was a time when fixed-income investors earned as high as 12% by investing in bonds of reputed companies such as Tata Capital and Shriram Transport Finance or fixed deposits (FDs) of companies like Telco (now Tata Motors) and Mahindra Finance.
Compared to this, global investors invested only 58% of their individual wealth in debt instruments during the same period.
Fixed income investors are generally risk-averse, want safety of principal and do not believe in churning their portfolios too much. They also want their investments to be as simple as possible.
There was a time when fixed-income investors earned as high as 12% by investing in bonds of reputed companies such as Tata Capital and Shriram Transport Finance or fixed deposits (FDs) of companies like Telco (now Tata Motors) and Mahindra Finance.
However, that was during the global financial crisis in 2008-2009. With the crisis receding, earning double-digit interest on FDs is no longer possible.
No wonder, 2010 has been a tough year so far for fixed income investors. Inflation has sky-rocketed and remained in double digits for a major part of the year.
No wonder, 2010 has been a tough year so far for fixed income investors. Inflation has sky-rocketed and remained in double digits for a major part of the year.
The Reserve Bank of India raised rates five times during the year, in a bid to rein in rising inflation. However, banks were flush with liquidity and did not raise interest rates.
So, while inflation was close to 10%, interest rates were in the range of 6-7% per annum. As a result, investors got negative real returns from their fixed income investments. Simply put, when an investor gets 7% from his FD while the inflation rate is 10%, he actually earns negative returns.
Typically, fixed income investors have choices such as FDs (bank and company FDs), debt mutual funds (liquid funds, income funds, gilt funds, fixed maturity plans) and post office investments like National Savings Certificates and 8% Government of India (GoI) bonds.
So, while inflation was close to 10%, interest rates were in the range of 6-7% per annum. As a result, investors got negative real returns from their fixed income investments. Simply put, when an investor gets 7% from his FD while the inflation rate is 10%, he actually earns negative returns.
Typically, fixed income investors have choices such as FDs (bank and company FDs), debt mutual funds (liquid funds, income funds, gilt funds, fixed maturity plans) and post office investments like National Savings Certificates and 8% Government of India (GoI) bonds.
Fixed deposits account for 30% of the overall individual wealth in India, while small savings constitute around 7% of the estimated wealth in India. Here, we take a look at some solutions for retired and working individuals:
Retired Individuals: Typically, an individual, who has worked during his active years, receives a lump sum on his retirement. Safety of capital is of prime importance to him. His objective is to generate a monthly income out of this corpus to sustain his lifestyle, some lump sum money for his children’s wedding or education and some surplus money to take care of medical emergencies or to go for a dream vacation as the case may be.
Safety is one of the biggest priorities for retired individuals. The Senior Citizens Savings Scheme, which gives 9% per annum payable quarterly, meets this important need.
Retired Individuals: Typically, an individual, who has worked during his active years, receives a lump sum on his retirement. Safety of capital is of prime importance to him. His objective is to generate a monthly income out of this corpus to sustain his lifestyle, some lump sum money for his children’s wedding or education and some surplus money to take care of medical emergencies or to go for a dream vacation as the case may be.
Safety is one of the biggest priorities for retired individuals. The Senior Citizens Savings Scheme, which gives 9% per annum payable quarterly, meets this important need.
Individuals, aged 60 and above, and retiring employees, aged 55 and above, can invest in the scheme. The scheme has five-year tenure and can be extended further for a period of three years.
The highest return that a retired individual can get with the highest degree of safety from the central government.
The highest return that a retired individual can get with the highest degree of safety from the central government.
However, one must note that premature closure is possible only after one year, with a nominal penalty.
If individuals want a monthly income, they can opt for a post office monthly income scheme (MIS), which gives a return of 8% per annum.
If individuals want a monthly income, they can opt for a post office monthly income scheme (MIS), which gives a return of 8% per annum.
Here, the maximum limit is Rs 4.50 lakh in a single account and Rs 9 lakh in a joint account. Here, too, premature closure after one year attracts a penalty of 2% while closure after three years attracts a penalty of 1%.
Investors can also look at company FDs, where in some cases the returns can be as high as 9.5-11%, though they do carry a higher risk compared to government schemes.
Investors can also look at company FDs, where in some cases the returns can be as high as 9.5-11%, though they do carry a higher risk compared to government schemes.
It is always advisable to invest in companies with AA or AAA rating and spread their investments across a number of companies.
Remember, don’t go by returns alone while zeroing on company FDs, as many retired people often fall victim to bogus companies offering high interest rates. However, when it comes to getting the capital back, they realize that the company has folded up.
When it comes to mutual funds for retired investors, fixed maturity plans (FMPs) and short-term income funds are considered the best bet.
FMPs give you the benefit of indexation and returns could be in the range of 8-8.5% for a 1-3 year tenure.
Working Individuals basically are averse to taking risks and, hence, do not want to invest any money in equity. Also, they may have some loans, like home and car loans, to repay. So, liquidity will be of prime importance to you, as the accumulated surplus money can be used in times of emergencies or fulfill short-term goals like a vacation.
Remember, don’t go by returns alone while zeroing on company FDs, as many retired people often fall victim to bogus companies offering high interest rates. However, when it comes to getting the capital back, they realize that the company has folded up.
When it comes to mutual funds for retired investors, fixed maturity plans (FMPs) and short-term income funds are considered the best bet.
FMPs give you the benefit of indexation and returns could be in the range of 8-8.5% for a 1-3 year tenure.
Working Individuals basically are averse to taking risks and, hence, do not want to invest any money in equity. Also, they may have some loans, like home and car loans, to repay. So, liquidity will be of prime importance to you, as the accumulated surplus money can be used in times of emergencies or fulfill short-term goals like a vacation.
So, what kind of strategy should such young risk-averse people adopt in a rising-interest rate scenario?
He/she could invest some amount in a post-office MIP, and if he/she does not want the monthly income, he/she could further invest it in a post-office time deposit. In addition to this, he /she may go for company fixed deposits, as they give a slightly higher return than other products.
He/she can invest in short-term income funds, as they offer ample liquidity, are tax-efficient and could give returns of around 7-7.5%. Such investors should invest in a combination of FMPs (fixed maturity plans) and short-term income funds. The duration risk in short-term income funds is low as they have a maturity of 1-2 years. .
However, experts believe that younger people should invest at least a small portion of their corpus in equities, as they can add sheen to their wealth.
He/she can invest in short-term income funds, as they offer ample liquidity, are tax-efficient and could give returns of around 7-7.5%. Such investors should invest in a combination of FMPs (fixed maturity plans) and short-term income funds. The duration risk in short-term income funds is low as they have a maturity of 1-2 years. .
However, experts believe that younger people should invest at least a small portion of their corpus in equities, as they can add sheen to their wealth.
Here are some ways to grow your money without investing in equities
If you have an investment horizon of 6-12 months, then you should opt for short-term income funds that give 6-8% returns
Go for fixed maturity plans (FMPs) of 370 days and reap the benefit of indexation for up to 8%
Invest a part of your money in company deposits for three years and earn returns as high as 10%. However, don’t get swayed by the promise of returns alone. Always stick to a company with an AAA or AA rating
You can switch from short-term income funds or liquid-plus funds to income or gilt funds, depending on the prevailing interest rates
Senior citizens can invest up to Rs 15 lakh in 9% Government Savings Scheme. They can also go for post office monthly income plans that give 8% returns per annum
Do not make the mistake of keeping too much cash in your savings account as that will earn the lowest interest.
For greater liquidity, you could invest in Equities. (Share/ Funds) which is though very much uncertain affair as per return is concern!
Choosing the right tax-saving product!
The tax season is just round the corner! And there are too many tax saving options available broadly categorized under two heads: one equity and two debt products!
There is your financial consultant but more often than not he might suggest only those products that will get him the highest commission!
Obviously you are confused! How about analyzing the right tax saving product for you? Want to know how?
To begin with ask yourself these two questions: your risk tolerance level and what stage in life you are in. But why should you do it in the first place?
Importance of finding your risk profile
Finding answer to this question can lead you to the right tax saving plan! Analyzing your risk tolerance level will help you shape up your investment portfolio and get the best out of it.
Now what is risk tolerance?
Your investments are prone to both positive and negative changes. In the risk of negative changes the big thing is to find out how much you can afford to lose on your investment. This is your risk tolerance level.
How to find your risk tolerance level?
There are two sides to it: one is financial and the other is emotional. The financial risk tolerance level is self explanatory. That is the amount of money you can afford to lose.
If you can afford to lose more money then you have a high risk tolerance level and if you cannot afford to lose huge money your financial risk tolerance is moderate and if you do not want to take risk at all your financial risk tolerance is called low.
Emotional risk tolerance is all about the stress level that you are put into when you lose money on your investment. The more your stress is, the lesser is your risk tolerance.
Investors fall into three categories based on their risk profile:
Conservative, balanced and aggressive
As the name implies conservative investors are averse to taking risk. Typically they have a low risk tolerance and prefer investing in safe havens like Public Provident Fund (PPF), National Savings Certificate (NSC), and Employees Provident Fund (EPF), Endowment plans when it comes to life insurance and on tax-saving bank fixed deposits.
The balanced investors are those who wouldn’t mind taking some amount of risk but still would park their investments in low-risk products like balanced unit linked insurance plan or ULIPs. In other words, their risk tolerance is moderate.
Those investors with the highest risk tolerance levels belong to the aggressive investor’s category. They have an appetite for taking risk. If you belong to this category you could invest in tax saving products like the equity linked savings scheme or ELSS.
Let us see the pros and cons of each of the tax saving products in all three categories of investors.
Products for conservative investors
With low or almost nil risk tolerance level the conservative investors usually go for fixed income products that would secure their investment.
Product | Returns (%) | Pros | Cons |
PPF | 8% annual tax free return | Min amount: Rs. 500Max amount Rs. 70,000/year for 15 years till it matures. Loan facility available. Enjoys ‘EEE’ status that is ‘exempt-exempt-exempt’ from tax. Your contribution, accumulation and withdrawal are exempt from tax. | Long lock in period. You cannot withdraw until the beginning of the sixth year. The loan amount is limited to a maximum of 25 percent of the balance at the end of the first year. |
NSC | 8 percent annual pre-tax return | Min amount: Rs 500 per year. No maximum limit. Enjoys ‘exempt-exempt-tax’ (EET) that is no tax on contribution but the interest is taxable on an accrual basis that is on each-year basis. | Maturity period: 6 years. No premature encashment option. Interest income is taxable. The effective post-tax return for the highest tax bracket is only 5.53% every year. |
Employees Provident Fund | 8.5 percent tax-free returns every year. | PF withdrawal is not taxable if contributions for over five years.’EEE’ status that is the contribution, accumulation and withdrawal is ‘exempt-exempt-exempt’ from tax. | PF withdrawal before five years is taxable. Premature encashment is available but only with conditions. |
Endowment plan | Lower returns compared to products like the PPF. | Life coverage and returns. | High premiums. Compared to the premiums that are paid in the first few years the surrender value might be lower. |
Tax saving fixed deposit | 6 to 8 % returns every year. | Min amount: Rs. 100 but varies with banks. Lock in period: 5 years, comparatively lesser than investing in products like PPF. | TDS is applicable for interest income of more than Rs. 10, 000 in a year. No premature withdrawal. |
Products for the balanced investors
The risk tolerance level of these investors is moderate and they invest in low-risk products as the conservative investors and also in unit linked insurance plan or ULIPs.
Product | Pros | Cons |
ULIP | Provides both insurance and investment. Long term saving products hence absorbs market volatility. Investing in debt funds is also available. Tax free returns. | Subject to market risk as a percentage is invested in stock markets. For better returns premiums for the entire duration should be paid. |
Products for the aggressive investors
These investors with high risk appetite can invest in tax saving products as the conservative and the balanced investors do. Apart from this they can also invest in equity-linked products, which generally do better than the conservative products but returns may vary with funds.
Product | Pros | Cons |
Equity-Linked Savings Scheme (ELSS) Invest in Shares | Minimum amount is Rs 500. Lock-in period: Three years. Dividend and returns at maturity are tax-free. No lock in period, less charges etc. | ELSS invests in stock market and hence is prone to market risks. Wrong selection of stocks leads to capital erosion |
Importance of having goals
Your stage in life will also have a say in deciding your investment portfolio composition. If you are someone young then you could consider investing in equity like ELSS, ULIP or take a home loan or educational loan to save tax. Once you grow older you can slowly get out of these avenues and invest in fixed income tax saving products like the PPF, FDs etc.
How to use risk profile + goals to choose the right option?
Returns on your investment are important but this alone should not be the driving factor in deciding your investment choice. There is no investment per se that can save you tax and simultaneously secure your investment and give highest return. Your final choice of tax saving investment should be guided by both your risk profile and your goals in life which again depends on the stage of life you are in. Remember, the goal is to have an investment portfolio that can give you decent returns and the risk tolerance level you can handle.
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