Priority to repo rate

The Reserve Bank of India has decided to make the repo rate the centerpiece of its monetary policy even as it raised the key benchmark rate by a higher-than-expected 50 basis points to 7.25 per cent as part of an aggressive inflation-busting strategy.

Governor Duvvuri Subbarao seemed to abandon the earlier nuanced position of carefully balancing the compulsions of quelling raging inflation through rate increases with the imperatives of accelerating the pace of growth in the world’s second-fastest economy.

The task of bringing down inflation should take precedence “even at the cost of some growth in the short term”, the RBI said in its latest monetary policy statement.

“The objective is to bring down inflation to somewhere between 4 per cent and 4.5 per cent. In the medium term, we would like to take it down to 3 per cent,” he said.

The RBI governor forecast a GDP growth of 8 per cent for this fiscal with inflation projected at 6 per cent with an upside bias.

The 8 per cent GDP forecast casts doubts on the government’s projections of 9 per cent this year. Moreover, the 8 per cent growth forecast assumes a normal monsoon and global crude oil prices at $110 a barrel.

The sharp 50-basis-point increase in the repo rate seemed to catch bankers and the markets off guard. “If you are referring to 25 basis points as a baby step, then yes, this is no longer a baby step,” Subbarao said in response to a question raised at a press conference later in the day.

The mandarins of Mint Road showed unexpected alacrity in overhauling the monetary policy template by picking up several elements from the report of a working group headed by RBI executive director Deepak Mohanty that was submitted less than 50 days ago.

Governor Subbarao accepted the Mohanty panel’s suggestion that the repo should be the only rate-signalling device of the monetary policy.

“The transition to a single independently varying policy rate is expected to more accurately signal the monetary policy stance,” the RBI said.

It also decided to fix the reverse repo rate at 100 basis points below the repo at 6.25 per cent. This makes the repo the only variable rate in the monetary policy. The reverse repo will move in tandem with it and will always rule 100 basis points below it.

The spread between the repo and reverse repo narrowed to 100 basis points on September 16 last year from 125 basis points earlier.

The Mohanty panel — which was set up in September to suggest ways to overhaul the process of monetary policy formulation — had recommended that the moribund bank rate should be reactivated as a discount rate and could form the “upper bound in the rate corridor”.

The bank rate has been stuck at 6 per cent since March 2004.

The Mohanty committee had suggested a rate corridor of 150 basis points with the bank rate ruling 50 basis points higher than the repo.

The RBI widened the corridor to 200 basis points by creating a new marginal standing facility (MSF). This will give banks a new window from which they can borrow overnight funds up to 1 per cent of their net demand and time liabilities. The Mohanty panel had suggested something very similar and had called it an exceptional standing facility.

The MSF rate has been fixed at 100 basis points above the repo rate at 8.25 per cent.

Subbarao said there were some problems with refashioning the bank rate as a discount rate.

“There are legal problems and some other interest rates are linked to the bank rate. One option is to resolve the legal issues and delink the interest rates,” he added. “The bank rate will stay for now and later we will link it to something else.”

The central bank also said the weighted average overnight call money rate would be the operating target of the monetary policy. This rate currently hovers at 6.44 per cent.

Tighter provisioning

The biggest beef for bankers was over the sudden decision to tighten provisioning norms for certain categories of advances. Last December, the banks were advised to achieve a provisioning coverage ratio of 70 per cent — which had upset banks such as the SBI.

The RBI has now said that advances classified as sub-standard assets will attract a provision of 15 per cent against 10 per cent earlier. The unsecured exposure of a sub-standard asset will attract an additional provision of 10 per cent. This means the total exposure on these assets will rise to 25 per cent from 20 per cent earlier.

Advances in the doubtful category up to one year will attract a provision of 25 per cent (20 per cent earlier).

The secured portion of advances which have been in the doubtful category for more than one year and up to three years will attract a provision of 40 per cent against 30 per cent earlier.

Restructured accounts classified as standard advances will attract a provision of 2 per cent in the first two years from the date of the restructuring.

The first-quarter monetary policy review is scheduled on July 26. 

Mutual Funds brace for outflow

Mutual funds may have to take a hit of around Rs 35,000-40,000 crore over the next six months.

The Reserve Bank has restricted banks from investing more than 10 per cent of their net worth as at the end of the previous financial year in the liquid/money market funds of mutual funds.

Banks that have investments over and above this cap are allowed to bring them down to the prescribed limit in the next six months.

At the end of March 2011, liquid/money market schemes of mutual funds had Rs 73,666 crore of assets under management.

Clearly, banks are going to pull their investments out of liquid funds over the next six months which could lead to an outflow of Rs 35,000-40,000 crore from liquid funds.

In my opinion banks have investments in almost all mutual funds and, therefore, most funds will suffer from this directive of the RBI. However, since banks comprise only a part of the institutional business of asset management companies, the effect of the outflow will be only partial and we would like to compensate this by getting in more corporate clients, NBFCs and insurance companies.

In the monetary policy announcement, the RBI governor said this measure was taken “to prevent systematic risk in times of liquidity crunch”.

Such a crisis had emerged in September-October 2008 after the sub-prime crisis came to light and Lehman Brothers fell in the US. There was a massive redemption pressure on mutual funds, and they had to stop payment to investors because of liquidity constraints. Banks were directed to extend additional liquidity support to mutual funds to help them handle the crisis.

Subsequently, market regulator Sebi revised the valuation norms for debt securities held by mutual funds, and from July 1, 2010 it had been mandatory for funds to mark to market (traded value) debt and money market securities with residual maturity of 91 days.

Following this, the debt schemes, particularly the short-term ones, became volatile in terms of NAV. This change in valuation norms also witnessed a large outflow of investment by institutional investors from liquid and ultra-liquid schemes. AUM of liquid funds, which stood at Rs 73,666 crore as at the end of March 2011, was Rs 78,094 crore at the end of March last year and Rs 90,594 at the end of March 2009. 

How ELSS can be a wealth generator

Most of the tax saving instruments under Section 80C are savings oriented instruments with returns after adjusting for inflation either in the negative or slightly positive. The exceptions to this are the ULIPs (Life and Pension Funds) and the ELSS Mutual Funds. The advantage with ELSS compared to the ULIPs is the frequency (mostly a single investment or a monthly investment for a year) and term for investment, for getting good returns.

Does ELSS diversify?

An ELSS (Equity Linked Savings Scheme) is a mutual fund that has to invest a minimum of 80% in Equity Shares. The balance 20% can be in debt, money market instruments, cash or even more equity. There is a 3 year lock-in period for the ELSS mutual funds. Post the 36 months, the funds remain invested and work like any other open-ended mutual fund.

Why an ELSS?

It has been an established fact that in the long run equity gives a much higher inflation adjusted returns when compared to any other investment except for maybe real estate. The top 5 ELSS funds have given returns from 22% to 26% compounded annually over the past 5 years. This is again higher than the market (Nifty) returns over the past 5 years which is at 19%.

ELSS is part of the Section 80C instruments which are cumulatively eligible for a deduction from income up to Rs.1L . This gives the tax payers benefits from 10% to 30% (excluding the educational cess) based on their current tax slab.

The return (maturity and the dividend [(if opted for]) from the ELSS is also tax free under the present EEE (Exempt - Exempt - Exempt) regime.  However, with the DTC regime tax benefits could be phased out and is under debate.

The 3 year lock-in period makes sure one stays invested. Otherwise in a normal mutual fund one tends to withdraw in case of any monetary requirement. The lock-in period also helps the fund managers to plan their investments better and also to hold on to valuable investments as they do not have to worry about sudden redemption pressures. The above logic is proved in the higher returns achieved by the ELSS funds when compared to the market returns. Wealth creation because of this is much better than most of the other mutual funds. Only some sector based mutual funds have given better returns than the ELSS fund in the past 5 years.

Options with the ELSS

Salaried people with a tight budget can opt for a monthly investment (SIP using ECS). The automatic investment from the bank through ECS makes it an easy way to invest.

Those who want an income in between can opt for the dividend option. This is particularly suitable for senior citizens. Also, the ELSS gives a tax free return compared to a bank or company deposit, which is taxable.

Limitations with ELSS

The investment in an ELSS cannot be switched or closed before the 3 years are completed form the date of investment. During market downturns, this becomes a limitation as one can only sit and watch the funds go down. One has the option of averaging when the market goes down, but an investment to save tax may not be required in the year in which the market is going down.

The lock-in works negatively also for the monthly investment because the lock-in is calculated from the date of the investment and not from the date the scheme was started. This means that the 12th month's investment can be withdrawn only on the 48th month. This is a disadvantage compared to ULIPs, where the lock-in is from the date of start of the scheme.

In summary

Most fund houses start an ELSS regular investment at Rs.500/- per month. Single investments start generally at Rs.5000/-. This makes ELSS accessible to all tax payers. With the compulsory lock-in giving better returns than other investments, even the most risk averse can look at an exposure to the ELSS fund for their tax benefits.

Children’s Education Plan:-

It’s that time of the year again when your kids are excited about going to a new class with a new set of books and a new syllabus. Every new academic session, however, also brings with it higher tuition fees.


 As parents, if you are oblivious to the inflation in education cost and do not have enough savings, your dreams of sending your kids to a good university for higher studies may remain unfulfilled. For example, if a university course costs Rs 3 lakh now, it will cost nearly Rs 9.5 lakh after 12 years.

Parents should no longer postpone the planning for their children’s higher education till they pass out of schools. You should start saving early so that your investments get enough time to grow to be able to meet future liabilities. The earlier you start saving for your children’s future education, the less you need to save each month.

Parents need to spend more once their children start their higher secondary education. A student passes Class X at the age of 15. So, you have 15 years since the time your child is born to save for his/her education. Now, given the time horizon, the second important question is what the instruments one should invest in are.

Product spread

Recently, a number of life insurance companies as well as mutual fund houses have come out with children’s education plans. Let us first examine these products on offer.

When it comes to children’s education plans, life insurance companies are more aggressive than mutual funds in their product offerings. Life insurance companies offer children’s education plans in traditional as well as unit-linked (Ulip) platforms.

The traditional plans are money-back schemes that offer annual payouts at specified periods of time during the policy term. These payouts are guaranteed.

Every insurer has on its respective website a premium calculator corresponding to different products illustrating the benefits a policyholder will get during the term of a policy. So, you can compare the costs and benefits of different traditional plans for children’s education of various life insurers.

However, there are better options that give a guaranteed return as well as tax benefits similar to a traditional life insurance plan.

Think of the ubiquitous Public Provident Fund. It gives a guaranteed return of 8 per cent per annum which is fully tax-exempt.

Let us compare the return from a PPF account with that of a traditional education plan from a life insurance company. For this, we will consider the Young Scholar Secure plan of Aviva Life Insurance Company.

The premium calculator and the benefit illustration of the insurance plan shows if you are 30-years-old and have a new born baby, by buying this plan you can get a life cover of Rs 14,03,500 for an annual premium payment of Rs 50,515. You will have to pay the premium for 13 years. When you kid becomes 13, he/she will get an annual payout of Rs 20,000 for five years. On attaining the age of 18, the child will get a lump sum Rs 1 lakh and a guaranteed maturity amount of Rs 12,03,500 at the age of 21.

Now, consider investment in a PPF account. An annual investment of Rs 45,000 in a PPF will give you a maturity amount of Rs 13,19,593 after 15 years when your kid is about to join Class XI. You may ask why we suggested an investment of Rs 45,000 every year instead of Rs 50,515 in PPF?

With an annual premium of Rs 5,530 you can buy a term life insurance of Rs 35 lakh for 20 years that will give you a 2.5 times higher life cover than you get in Aviva Young Scholar Secure.

With this combo investment plan you can ensure that if anything happens to you anytime before your kid turns 20, your family as well as your kid’s higher education are well protected.

After using Rs 19,593 for tuition fee, if you keep the remaining PPF proceed of Rs 13 lakh in a fixed deposit account earning a 6 per cent annual interest for 5 years, you will still get an annual interest income of Rs 78,000. So, under this combo investment plan, your payouts will be Rs 19,593 in the 15th year and Rs 78,000 each year for the next five years and at the end of the 21st year you get the principal deposit of Rs 13 lakh back.

This way you can earn Rs 5 lakh more in terms of survival payouts than buying the Aviva plan.

Emergency situation

Now what happens if you die within these 21 years. Under the Aviva plan, your nominee will get Rs 14,03,500 (the sum assured) in addition to all payouts already made if you die any time between the 12th and 21st year. Unpaid premium if any will be waived off.

However, if you die in the first year of the policy, your nominee will get a lump sum payment of Rs 20,03,500 immediately and the annual payouts at specified intervals. The unpaid premium will also be waived off. The death benefit, however, will decline by Rs 50,000 with every year.

In the combo investment plan, your nominee will get Rs 35 lakh on your death during the policy term — Rs 15 lakh more than the maximum death benefit payable under the Aviva plan.

The return on this Rs 15 lakh when invested in a fixed deposit earning an annual interest of 6 per cent can take care of the annual PPF subscription amount and your family can still have Rs 40,000 annual interest income from the fixed deposit.

This shows that there are better investment opportunities in the assured return space than traditional insurance plans for children’s education. Guaranteed NAV products of insurance companies are also not better products compared with a PPF-term life combo plan.

In fact, assured income products are also not advisable if you are planning a long-term investment.

The greatest risk to a long-term investment is inflation and not capital loss. So, if you choose a fixed income asset for long-term investment, you carry a higher risk of inflation eating into your return. You can gain more by investing in equities than in fixed income instruments.

When it comes to equity investment, the two popular avenues are Ulips of life insurance companies and equity mutual funds. After the September regulations on Ulips, these products have become more attractive and at times better than equity mutual funds.

When it comes to your child’s future, there is no room for hasty decisions. Measure the pros and cons while selecting a plan as it can go a long way in deciding your child’s life.

Investing where? Gold or silver?

It is really important for an investor to first understand the economy and the financial systems prevalent in the market before he decides what to invest in. With the cost of crude oil having increased considerably per barrel, the GOI has also acted by increasing the price of petrol and diesel severely.


Should an investor buy more gold or silver?

Precious metals were the best performing assets for the second consecutive year and also for the fourth time in the last five years. Investors enjoyed a 42% return by investing in precious metals in 2010. Silver performed much better than other precious metals in the market in 2010 with prices rising by an astounding 80% which is two and half times the rise in price of gold (29%).

Along with being deemed a safe investment, the relatively low supply of the metal as compared to the high demand has also contributed to the steady increase in price. In the first two months of 2011, silver's price has increased at a steady 9.3%.

Judging by the present market scenario, investing in precious metals will be a very wise decision. And it will make more sense to invest in silver than in gold….at least now!

Some parameters one should consider before investing in gold or silver?

One of the main reasons investors prefer investing in these two metals is the stability witnessed in the market. Liquefaction is also an easy process for gold or silver bars and coins. However, purity of the mineral is of utmost priority and should be given due importance.

Another important factor governing the decision on whether to invest in gold or silver is the price. Though the variation in the price of gold or silver is not as unpredictable as that of shares and equities, there still is a noticeable difference on a daily basis. But when you are investing a large sum of money then this can make a lot of difference. Hence, one should study the market carefully and invest when the price is relatively low.

Choosing the right vendor is also very important. If carefully observed then the price variations with wholesalers, retailers and commercial banks can be clearly observed. So one should watch out for the purest gold available at a comparatively low price. For a regular investor, it makes sense to invest at regular intervals. This way one can take advantage of the market volatility. Investing in both gold and silver makes sense for a regular investor as he can diversify and can have a steady return irrespective of market fluctuations.

Different forms of investing in gold and silver:-



Bar: One of the most traditional ways, dealing with bars is very simple too.

Coins: This sort of investment depends on the weight of the gold or silver coins.

Accounts: Swiss banks provide a Gold-account option which aids in transactions involving the precious metal.

Gold Exchange Trade Funds: This method helps gold transactions through the stock exchange.

Spread betting: This involves predicting the rise and fall in the price of gold or silver before investing in it.

Investing with mining companies: This is just like investing in the stock exchange. The only difference is that here one deals with shares from mining companies.

When is the right time to sell gold or silver?

With the current financial slump, people are selling their gold and silver as a means to make some extra cash. But with the price of the two precious metals having reached an all-time high, it would probably be wise to hold on to it and see how far the prices soar and then cash in at the opportune moment.

There are two factors that govern the decision of the timing of a transaction involving gold or silver. The value of the US Dollar at that moment and the investor's financial situation. Usually, the price of gold is inversely proportional to that of the US dollar. But most investors don't have pure gold lying around in large quantities. So unless you are investing or speculating on a really large amount of gold or silver, the drop in the US Dollar's value will not matter.

How to pay off your education loan

Many young people have a serious problem on their hands today - they have a degree which does not help them get a nice job. They have taken a loan to get that degree, and they have no place to stay in a big city.


Welcome to the American lifestyle. Children who have left their houses to go to a bigger city to get a degree - quite likely an MBA are wondering what to do. The actual scenario may be a little different from case to case, but it is somewhat like this:

Here is a boy or girl from a not-very-well-off family who has been enticed into doing an MBA with a huge bank loan. However, by the time the student completes the course the market is in a downward spiral and he/ she is unable to find a job. Actually not enough jobs are being created. In this situation what can a student do? Well, here are some useful tips:

1. Go get a job, any job: It is quite surprising as to how people can sit at home and twiddle their thumbs WAITING to see what to do in life! Go get a job, any job. This has to be the most important advice for an MBA graduate or also an engineering graduate! If you think an MBA degree should get you a Rs. 500,000 job at the least, it may not always happen in real life. I have seen MBAs working on a starting salary of Rs. 6500 (year 2009) and are not badly off for it!

2. Stop thinking sales job should not be done: There are many MBA students who have unfortunately got into a mindset that sales jobs are bad. Sales people bring in the money for the organization to run, so selling is not so bad after all. If you ever want to be a CEO, go and learn how to sell. Other tasks can be outsourced, but if you have a product, YOU NEED to be passionate about it. Learn selling skills is very important – do quick arm-chair researches on how many Managing Directors have reached that post from the sales side of the organization. If you have to be on your own, then you need to be passionate about sales. That is one very important characteristic that venture capitalists will look for if you are seeking funding for your project.

3. Try to defer your student loans: Just check out the possibility of deferring your student loan repayment. The bank may agree to charge you interest for the deferred period, but at least the day-to-day worry about the month end payment is postponed. If your parent has given the guarantee, keep them informed and let them know that you will not be able to meet the commitment either in full or part.

4. Take no chance with insurance: Ensure that your vehicle insurance, medical insurance and life insurance payments are up to date! These are the easiest of payments to skip, and tempting too. Do not delay or neglect to pay - if you break your leg you still need medical insurance. Make sure that you have a cheap term insurance and some minimum medical insurance at least.

5. Keep your chin up: Learn to laugh about what is happening in your life. I am sure that this is easier said than done. I recently heard of a client whose daughter was in coma for 9 days. Would not have been easy, but he was holding his chin up. So remember, tough times do not last, tough people do.

6. Move back to your parent’s house: If you have moved from your town to a city to study or take up a job, seriously reconsider moving back. It is all right to come to town for interviews instead of incurring rent at a new place. This is really a tough call - it is a mix between wanting to be where the action is and saving some money. Tough call kids, but you have to take the call.

7. Join groups: Alumni, HR groups - any group to keep in touch with the corporate world. All colleges have (and need) such groups which meet - accounting, finance, Human Resources, just about anything. There is some chance of meeting a potential employer!

8. Some small companies will happily let you work for free! Well, if they offer you Rs. 5,000 per month, do not get into an ‘I am a MBA’ kind of aggressive mode. Just take it. Yesterday heard of a kid who moved from Rs. 5k a month in a production house (media companies are perhaps the worst exploiters!) in the year 2007 to freelancing today at a price of Rs. 80,000 a month (year 2010). Yes, on an assignment basis! It pays to have a worn out sole and some time spent in the sun.

9. Learn some skills: Public speaking, dramatics, Excel, Power-point, basics of business finance, sales marketing, and written communication - all are useful skills. See what you can learn for free, and what you can learn cheap. Offer to do some marketing for the organizer – tell him you will get them five people signing up – and can you attend for free? No harm in asking. See if you can get something free or for a pittance. Learn everything that you think is transferable...all this can add up.

10. Be clean: Say no to drugs, tobacco, alcohol - all these have a terrible way of catching up in your corporate life later on. Be clean, be clean, be clean, need one say more? No drunken driving, getting into trouble for anything illegal. And do not get into some bravado about doing something like this and putting it on Facebook. Enough numbers of HR people keep prowling FB for tell tale signals.

11. If you rely just on job websites for a job, you are doomed! Be on job sites, be on networking sites, be on Facebook, be on LinkedIn, just connect, call, meet and get a job. If you still cannot get a job (be honest to yourself, not to me) there is something wrong with your attempt.

12. Keep that credit card at home: If you do not know how you will repay a loan, do not take the loan. Carrying a credit card with you everywhere is not a great way of avoiding temptation. If you know you cannot resist the urge to buy, destroy the credit card. Get a new card when you have a job. By that time if you have learnt to live without a credit card, rejoice! An eight percent growth economy creates enough jobs. You will find yours, for sure.

Harshad scam crores released

The custodian appointed to look into the 1992 securities scam today released payments worth Rs 2,196 crore to the income tax department and the State Bank of India from the liquidated assets of Harshad Mehta’s group of companies.


Nearly 19 years after the share scandal shook the BSE, Satish Loomba, the custodian (trial of offences relating to transactions in securities), handed over cheques worth Rs 1995.66 crore to B.P. Gaur, the director-general of investigation (central) of income tax, and Nilima Mansukhani, the chief commissioner of income tax in his Nariman Point office.

Another cheque of Rs 199.25 crore was given to B. Sriram, the chief general manager (securities) of the SBI.

The amounts were released after the Supreme Court on Monday declined to stay the distribution order by Justice D.K. Deshmukh of the special court, Mumbai, on payments to the IT department and the SBI.

Justice Deshmukh had issued the order on February 25. The payments were released on the basis of undertakings given by the department of revenue and the SBI that the amounts would be brought back, if ordered by the special court.

Loomba told reporters that the nearly Rs 2,000 crore payment had settled the IT department’s claims of principal amount of dues from Mehta’s companies.

He said according to court orders, the IT department’s claims had to be settled before those of banks and financial institutions. If any money remained, claims related to interest and penalties would be settled for the IT department as well as banks and financial institutions, he said.

The custodian said of the Rs 4,500 crore obtained from liquidation of Mehta’s companies, Rs 4,000 crore had already been disbursed. The rest would be distributed according to apex court orders, Loomba said.

He said of Rs 1,717 crore in claims from banks and financial institutions, nearly Rs 1,000 crore was claimed by the SBI, Rs 500 crore by Standard Chartered Bank and the rest by other banks and FIIs. He said after the nearly Rs 200 crore payment, the SBI had now received the principal amount totalling Rs 800 crore.

The custodian is the principal administrative officer appointed under the Special Court (trial of offences relating to transactions in securities) Act of 1992 to deal with the securities scam and the recovery of huge amounts of money lost by the banks.

Under the act, the officer has the powers for attachment, management and liquidation of assets of notified persons and functions under a system of concurrent judicial review by a special court comprising sitting Bombay High Court judges.

With today’s payments, the custodian has released over Rs 4,000 crore worth of payments from the liquidated assets of Mehta’s group of companies.

Courtesy: - The Telegraph,Kolkata.17/03/2011.

Skype and the Sendai earthquake and tsunami - free WiFi and Skype Credit vouchers

A great move by Skype. Skype and the Sendai earthquake and tsunami - free WiFi and Skype Credit vouchers

3 essential finance resolutions for and from 2011

The start of the New FY is a great time to put in place practical resolutions for your personal finances. Here are 3 simple resolutions that are within the reach of everyone, irrespective of your knowledge of finance or your current income level.

1. "I will be a smart saver to protect myself against inflation"

Inflation is a hidden tax that eats away into our money. For example, food inflation is currently being reported as running at approximately 14%. That means that assuming your income stays the same, your money will only be able to buy lesser food than it was able to in the past. The purchasing power of your money is being eroded.

The best thing for you to do is to put your money into instruments that generate a long-term rate of return that is higher than inflation. Only then can you maintain the purchasing power of your money. As far as possible, avoid fixed deposits and fixed income instruments, especially if you are young. Rather, invest in equity mutual funds or instruments where the after tax-return is higher than the long-term inflation rate.

2. "I will prioritize productive assets over consumptive assets"

All of us are tempted to buy the latest mobile phone, fashion accessory, or use our money towards eating out and going to the movies every other day. After all, we work hard so we deserve all the pleasures of life. However, by spending our money this way, all we are doing is "consuming", with no real asset to show at the end of the day.

No one is suggesting that you totally stop the discretionary spending that gives you pleasure. Rather, recognize that if you prioritize building assets that can give you income, in just a few months you will likely have more sources of income to spend on discretionary items. So, before you use your bonus or pay rise to buy that hot new gadget which will get obsolete in no time anyway, use these funds to invest. Thereafter, use the returns from these investments for whatever consumption you still want to do.

3. "I will spend 1 hour in every month from the FY reviewing my financial goals for 2012 and onwards"

History suggests that those who take time to identify their goals in life are usually better prepared to achieve them. It should be obvious that if you don't know what you want to achieve, you might just wander directionless, and you might not be happy with where you end up.

So, if you want to buy a house, upgrade your car, get out of debt, or pay for your child's education - whatever the goal, spend at least 1 hour in March reviewing what you want to achieve, and then consciously create a plan to achieve this.

All of us have busy lives and chances are that most resolutions don't last beyond March. However, if you stay realistic about the above, come March you will be financially much happier.

Good Luck.

Taxation Of Non Resident Indian

General Information


Under the Income Tax act, every person who is an assessee and whose total income exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates prescribed in the finance act. Such income tax shall be paid on the total income of the previous year in the relevant assessment year. But the total income of an individual is determined on the basis of his residential status in India.

Resident and Non Residents

The income tax to be paid by an individual is determined by his residential status. An individual can be termed as a 'resident' if he stays for the prescribed period during a fiscal year i.e. 1st April to 31st March either for

 182 days or more

 60 days or more (182 days or more for NRIs) and has been in India in aggregate for 365 days or more in the previous four years

 However, the criteria of 60 days are extended to the first criteria of 182 days for any one of the following instances:

 1. If you reside abroad for the purpose of employment.

 2. If you reside abroad as the member of the crew of an Indian ship.

 3. If you are an Indian citizen or a person of Indian origin who comes to India on a visit.

Any person who does not satisfy these norms is termed as a 'non-resident'. A resident individual is considered to be 'ordinarily resident' in any fiscal year if he has been resident in India for nine out of the previous ten years and, in addition, has been in India for a total of 730 days or more in the previous seven years. Residents who do not satisfy these conditions are called individuals 'not ordinarily resident'.



In recent times the Government of India has opened the Indian market and economy to attract more foreign capital and technical know-how. The foreign investors may be Indian Nationals who resided outside India and other foreign investors including corporations. A person who resides outside India is technically known as 'non-resident'. The residential status of an individual does not depend upon the nationality or domicile of that person but it depends upon his stay in India during the previous year.



In case of an assessee, other than an individual, the residence depends upon the place from which its affairs are controlled and managed. If the control and management of the affairs of a foreign company is, during the previous year, located wholly in India, it shall be treated as resident in India. Where part of the control and management of the affairs of a foreign company is situated outside India, it shall be treated as a non resident company.



Status Indian Income Foreign Income

Resident and ordinarily resident Taxable Taxable

Resident but not ordinarily resident Taxable Not taxable

Non Resident Taxable Not taxable

Life insurance IPO a distant dream

Domestic life insurance firms are in no hurry to hit the market with their initial public offerings (IPOs) even if the regulator announces the guidelines now, according to a research report by HSBC. According to the report, the hitches — such as limits on foreign direct investment, a 10-year track record and the absence of IPO guidelines — that have prevented floats by domestic life insurers will be removed this year. However, it believes “only a brave Indian insurer” will come out with an IPO now, given the impact of the new regulations on unit-linked insurance plans (Ulips) and the pending direct tax code (DTC) bill. New policy sales by private firms have fallen 20.78 per cent to 88,45,283 till the end of January this fiscal from 1,11,65,771 a year ago. The decline in the sale of individual regular premium policies was sharper at 22.7 per cent — from 1,05,67,140 to 81,68,782. “New business margins are also under pressure given the imposition of fee and surrender penalty caps in Ulips,” the report said. Following the new guidelines, the share of unit-linked business to total policy sales came down to 48 per cent from 52 per cent before September 2010. Though the premium income (of private players) from new policy sales during April-January rose 5.84 per cent year-on-year, it came on the back of a steep increase in the premium rates of Ulips. “Some insurers have started offering more guarantees on unit-linked products (such as NAV guarantee, capital protection) as they are not subject to Irda cap on charges and are hence high-margin business,” the report said. “Insurers have also tried to tap traditional products that are also not subject to caps on charges and fees. However, it will be difficult for private insurers to compete on profitability because the Life Insurance Corporation of India is able to fund higher policyholder participation rate with free reserves accumulated over past generations.” The DTC, if implemented unchanged in March 2012, could result in a collapse in sales and significantly lower earning for the life insurance sector. The current DTC proposal will strip Ulips of all tax advantages and also does not provide relief to existing Ulips. The latest published draft proposals for DTC provide for only Rs 50,000 tax deduction for life insurance premium, medical insurance premium and tuition fees taken together compared with Rs 1 lakh available for deduction now. Besides, the insurers’ corporate tax liability will also increase to 30 per cent from 14 per cent. R. Krishnamurthy, former managing director of SBI Life Insurance Company and the present MD (distribution channel) of Towers Watson, had said, “Many domestic promoters of life insurers will be in a dilemma because these changes will put capital strain and promoters having non-financial sector as core business will find it difficult to pump in money in their insurance venture.” Source: The Telegraph, Calcutta March 9,2011

Reliance Life with Japanese firm

  

Japan’s largest life insurer Nippon Life Insurance Company is in talks to pick up a 26 per cent stake in Reliance Life Insurance Company of the Anil D. Ambani group.

Nippon Life will reportedly pay close to 60 billion yen ($723 million) for the stake in Reliance Life, the arm of Reliance Capital Ltd, according to a report in Japan’s Asahi newspaper.

So far, the group has made a capital infusion of around Rs 3,100 crore in Reliance Life.

However, a spokesperson for Reliance Capital declined to confirm reports that its insurance arm was in talks with Nippon Life.

The entry of Nippon is expected to benefit Reliance Life as it will not only be able to gain access to more capital but also tap into the skills of the Japanese insurer. On the other hand, the latter will gain an entry into India where a huge potential for insurance business is seen despite it having low penetration currently.

At present, there are 23 life insurers who have set up operations in India. A significant number of these players (21) have tie-ups with foreign partners.

Reliance Life has an 8 per cent market share in the private sector when it comes to new business premium. It has more than 1,200 branches and over 200,000 agents. As on December 31, 2010, its total funds under management stood at Rs 17,355 crore. For the third quarter, the company’s total premium was placed at Rs 1,447 crore, of which renewal premium stood at Rs 857 crore.

The insurer had earlier said it could engage a foreign partner ahead of its proposed initial public offering.

Senior officials had then indicated that if the partner picked up the entire 26 per cent, the float may be postponed.

Costly Affair

Patients will now have to pay more for treatment in big private hospitals and getting their medical tests done in diagnostic centers as the government has brought these under the service tax net.

All private air-conditioned hospitals having more than 25 beds will now attract 5% services tax.

The burden will be on 75- 80% of patients in India who still don’t have health insurance cover and pay from their pockets for their treatment. For instance, a patient running hospitalization bill of Rs 20,000 having to fork out Rs 1,000 extra or 5% as tax to the government.

Similarly, patients will also have to pay 5% more for medical tests in diagnostic centers. This means, a diabetes patient who pays anywhere between Rs 60-100 for a routine monthly blood test will need to shell out as much as Rs 60 more in a year.

The tax on diagnosis is detrimental to preventive healthcare and early diagnosis which is the key to address the mounting burden of chronic non-communicable diseases, estimated to cost India $237 billion in national income over the next 10 years.

 Hospitals air-conditioning is used primarily to control infections, unlike in hotels where it is used for comfort. This (tax on air-conditioned hospitals) is a retrograde step for the industry.

Form of complaint (to be lodged) with the banking ombudsman

To:


The Banking Ombudsman

Place of BO’s office…………………………..



Dear Sir,

Sub: Complaint against …………………….(Name of the bank’s branch) of

…………………………………………………………………………………(Name of the Bank)



Details of the complaint are as under:

1. Name of the Complainant …………………..



2. Full Address of the Complainant ……………………

……………………

……………………

Pin Code ………………..

Phone No/ Fax No. .……………………

Email …………………….



3. Complaint against (Name and full address of the branch/bank) ………………………….



Pin Code …………………….

Phone No. / Fax No. …………………….



4. Particulars of Bank or Credit card Account (If any)

…………………………………………………………………………



5. (a) Date of representation already made by the complainant to the bank (Please enclose a copy of the representation) ……………………….



(b) Whether any reminder was sent by the complainant? YES/NO

( Please enclose a copy of the reminder )

……………………….



6. Subject matter of the complaint (Please refer to Clause 8 of the Scheme)

…………………………………………………………………………………………



7. Details of the complaint:

(If space is not sufficient, please enclose separate sheet)

………………………………………………………………………………………………



8. Whether any reply (Within a period of one month after the bank concerned received the representation) has been received from the bank? Yes/ No

( if yes, please enclose a copy of the reply )



9. Nature of Relief sought from the Banking Ombudsman

………………………………………………………………………………

( Please enclose a copy of documentary proof, if any, in support of your claim )



10. Nature and extent of monetary loss, if any, claimed by the complainant by way of compensation (please refer to clauses 12 (5) & 12 (6) of the Scheme) Rs.……………….



11. List of documents enclosed:

(Please enclose a copy of all the documents )



12. Declaration:

(i) I/ We, the complainant/s herein declare that:

a) the information furnished herein above is true and correct;

and

b) I/We have not concealed or misrepresented any fact stated in the above columns and in the documents submitted herewith.

(ii) The complaint is filed before expiry of period of one year reckoned in accordance with the provisions of Clause 9(3)(a) and (b) of the Scheme.

(iii) The subject matter of the present complaint has never been brought before the Office of the Banking Ombudsman by me/ us or by any of the parties concerned with the subject matter to the best of my/ our knowledge.

(iv) The subject matter of the present complaint has not been decided by/pending with any forum/court/arbitrator.

(v) I/We authorise the bank to disclose any such information/ documents furnished by us to the Banking Ombudsman and disclosure whereof in the opinion of the Banking Ombudsman is necessary and is required for redressal of our complaint.

(vi) I/We have noted the contents of the Banking Ombudsman Scheme, 2006.





Yours faithfully,

(Signature of Complainant)



NOMINATION – (If the complainant wants to nominate his representative to appear and make submissions on his behalf before the Banking Ombudsman or to the Office of the Banking Ombudsman, the following declaration should be submitted.)



I/We the above named complainant/s hereby nominate

Shri/Smt………………………………………….. who is not an Advocate and whose address is

……………………………………………………………………………………………………………………… ………

as my/our REPRESENTATIVE in all proceedings of this complaint and confirm that any statement, acceptance or rejection made by him/her shall be binding on me/us. He/She has signed below in my presence.



ACCEPTED



(Signature of Representative)

(Signature of Complainant)

Note: If submitted online, the complaint need not be signed.

Insurance Ombudsmen in India

The institution of Insurance Ombudsman was created by the Government of India to handle complaints of aggrieved insured person’s pertaing to Insurance in India.


The main function of the office of the Indian Insurance Ombudsman is to quickly dispose the grievances of insured customers and lessen the problems involved in redressing complaints. This institution of Insurance Ombudsmen is vital and relevant to protect the interests of policyholders and also shape their belief in the system. The existence of an Insurance Ombudsman has helped generate and sustain faith and confidence amongst both consumers and insurers alike.

Insurance Ombudsmen are chosen from various fields such as the Civil Services, Insurance Industry and Judicial Services. They are appointed for a term of three years or till they turn sixty-five years of age. Currently there are twelve Insurance Ombudsmen appointed in different parts of the country. They all have defined jurisdictions.

Details of the Insurance Ombudsmen can be obtained from the Insurance Regulatory and Development Authority (IRDA) website www.irdaindia.org or from any Indian insurer’s office.

Claimants who could not get their complaints redressed by insurers may get in touch with the Insurance Ombudsman relevant to their states within India.

For more details, please visit: http://www.irdaindia.org/ins_ombusman.htm

15 Indians named--------Black money list revealed

Names of 15 Indians who have stashed away wealth in offshore banks have been made public by Tehelka magazine in its latest issue.


Tehelka claimed it has in possession two more names, but were holding them back for verification. One name is alleged to be that of a prominent politician and the other chairman of a leading company.

The 15 names include Manoj Dhupalia, Rupla Dhupalia, Mohan Dhupalia, Hasmukh Gandhi, Chintan Gandhi, Dilip Mehta, Arun Mehta, Arun Koohar, Gunwanti Mehta, Rajnikant Mehta, Prabodh Mehta, Ashok Jaipuria, Raj Foundation, Urvasi Foundation and Ambunova Trust.

According to information with ET, a member of a promoter family of a reputed Chennai-based business group and some diamond traders also figure in the full list furnished by German authorities to the Indian government two years ago.

The German government purchased the data from an ex-employee of LGT Bank, the flagship bank of Liechtenstein , a country viewed by global banking groups as one of the major tax havens in the world.

Germany handed over the list on March 18, 2009, but the Government had refused to divulge the names as it had to honour the commitment given under tax treaties. Under provisions of the tax treaties, information exchanged is to be used only for the purpose for which it is sought.

Therefore, the government is not in a position to make these names public, but only recover tax on the unaccounted income.

The Income -Tax Department has sent notices asking 15 entities to pay up but the government has taken special care to ensure that no name was released to the public. The amount of money stashed away in Liechtenstein's is minor, compared to the size of the black money stashed in several other offshore banks.

As per an estimate by Tax Justice Network, an NGO, the volume of money lying in these banks could be over $11 trillion.

Hai Preet Jahan Ki Reet Sada

Nominee of bank account does not get succession rights

The Supreme Court (SC) has clarified the nominee of a depositor in a bank does not get ownership of the money in the account after death of the depositor. The nominee gets exclusive right to receive the money lying in the account. It gives him all the right of the depositor as far as the depositor's account is concerned, according to Section 45ZA of the Banking Regulation Act.

But the banking law is not concerned with the succession. The money in the account will form part of the estate of the deceased depositor and devolve according to the rules of succession. In this case, Ram Chander vs Devender Kumar, one son was the nominee of his mother. After her death, he claimed he was the owner of the money in the account, to exclusion of his brother. The same rule will apply to government savings and other investments.

Courtsy-BS Reporter / New Delhi November 15, 2010, 0:23 IST