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Section 80CCD

noreply@blogger.com (India Stock Picks) — Mon, 03 Feb 2020 05:15:00 +0000

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Income tax deduction under section 80CCD

Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides taxpayer deductions against investments made in specific sectors. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard.

There are two parts of Section 80CCD. Subsection

1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In this case, the deduction of a maximum of 10% of the salary in the case of salaried employees and 20% of the gross income in the case of self-employed taxpayers is permitted. The total amount of deductions under this subsection of Section 80CCD cannot be above INR 1 lakh in a fiscal year. Subsection 2 of Section 80CCD refers to the contributions made by an employer towards NPS on behalf of an employee. This subsection allows the employees to claim the contribution as a deduction. The deduction amount is limited to 10% of the employee's salary.

Terms & Conditions for claiming deductions under Section 80CCD

Let's look at the terms and conditions that must be fulfilled to claim deductions under the provisions of Section 80CCD:

-Deductions available under this section can be claimed by both salaried and self-employed individuals, as well as their employers, so long the contributions have been made to the National Pension Scheme/Atal Pension Yojana.

- Maximum deduction of INR 1.5 lakh can be claimed under Section 80CCD. The computation is as follows: 10% of the salary in case of salaried individuals (this would include the basic salary plus the dearness allowance granted) or 20% of the gross income in the case of self-employed individuals.

- From FY 2016-17 onwards, the Finance Department has permitted individuals to claim an additional deduction of up to INR 50,000 on account of any contributions made towards NPS only under subsection 1B. This subsection provides that an assessee is allowed a deduction in the computation of his total income of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified by the Central Government. This deduction is irrespective of the amounts claimed as deduction as 10% of the salary or 20% of the gross income in subsection 1.

-If an individual is claiming deductions under Section 80CCD, the same cannot be claimed under Section 80 C.

-Any deductions made under subsection 1 of Section 80CCD are capped at INR 1 lakh per year. Any deductions made under subsection 2 of Section 80CCD are capped at INR 1.5 lakhs and is over and above the INR 1 lakh limit.

Who is eligible for claiming deductions under Section 80CCD?

Deductions under Section 80CCD can be made by salaried as well as self-employed assesses. However, such deduction is only permitted for contributions made towards the National Pension Scheme or Atal Pension Yojana.

Deductions on employer contributions are also permitted under Section 80CCD. However, corporate or HUFs or any other class of assesses are not allowed to claim any deduction under the provisions of this section. It is also important to note that only contributions made to Tier 1 accounts of NPS are eligible for the benefit of the deduction. The deductions can be claimed at the time of filing the income tax returns at the end of the financial year.

How to claim tax deductions under Section 80CCD?

The deductions under this section can be claimed at the time of filing IT returns. Evidence of payment of the contribution to the pension account should be provided. If you are filing your returns online via the website of the income tax department, the details of deductions under Section 80CCD will be populated on its own from the information available in Form 24Q. The total amount of deduction under Section 80CCD (1) cannot exceed INR 1.5 lakhs. An assessee can also utilize the provisions of Section 80CCD (1B) to claim an additional deduction of INR 50,000 for the contributions (made by the assessee itself or deduction from salary) towards NPS.

Claiming a deduction can reduce your tax liability significantly. Therefore, it is crucial to calculate the tax deductions carefully when filing the returns.

FAQs on Section 80CCD

Are HUFs eligible to claim Section 80CCD deductions?

No, this section provides tax deduction benefits for individuals only.

What is the National Pension Scheme?

National Pension Scheme was launched in 2004 by the Government of India as a pension-cum-investment scheme. This scheme benefits Indian citizens between the age of 18-65 years. NPS is a very popular option for those individuals who do not draw a steady post-retirement pension. The scheme is regulated by the Pension Fund Regulatory and Development Authority. NPS is based on a contribution model: the subscriber of NPS, while employed, is required to contribute to the retirement account on a regular basis. The contributions received are, in turn, invested by pension funds. The investments are in equity, bonds, government bonds, and alternative assets. The total amount accumulated in the NPS account is dependent on the contributions made and the income from the investment of the amount. The subscribers are permitted to withdraw from the NPS account only for specified reasons.

What is the Tier-II account of the National Pension Scheme?

Tier-II account is a voluntary savings account. It can be opened only where a subscriber has a Tier I account under NPS. The minimum initial contribution is INR 1,000. A minimum of INR 250 should be contributed at one time. Except in the case of government employees, there are no restrictions on the withdrawal of funds from the Tier II account. This account also allows the subscriber to transfer the funds to the Tier I account at any time.

Is it possible to claim Section 80CCD deduction on the amounts contributed to the Tier II account of the National Pension Scheme?

No, the benefit of the deduction is only available for the contributions made to the Tier I account.

I have a Tier I NPS account, and I am self-employed. I wish to claim Section 80CCD deduction. What investment proof do I need to furnish to claim the benefits?

You can submit the Transaction Statement as proof of investment. You can also download the receipt of voluntary contribution made in Tier I account for the financial year in question. It can be downloaded from the tab titled "Statement of Voluntary Contribution under National Pension System (NPS)" once you log on to the NPS website.

What does the word 'salary' refer to for claiming Section 80CCD deduction?

As per the explanation appended to Section 80CCD, salary includes dearness allowance but excludes perquisites and any other allowances provided by an employer.

Rahul has a Tier I NPS account. He is self-employed and makes his contributions to NPS through cheque. Is this contribution eligible for claiming deduction under Section 80CCD?

Yes, both cash and cheque are permitted for claiming deductions.

Are there any exclusive benefits available for claiming tax deductions under Section 80CCD in the case of government employees?

Except for those employed with the Armed Forces, in case of government employees who joined services after 1st January 2004, an additional deduction of up to 10 percent of salary is eligible for tax deduction under Section 80CCD(2). Government employees are also eligible to enjoy an increased income tax deduction of 14% of the employer's contribution.

Ritesh is an NRI. Is he eligible to open an NPS account?

Yes, an NRI is eligible to open an NPS account. However, all contributions made to NPS account by an NRI is subject to the regulations prescribed by RBI and FEMA. Additionally, OCIs and PIOs are not eligible to open NPS accounts in any capacity.

Is it possible to open multiple NPS accounts?

No, an individual can only have one NPS account. However, you can consider opening an NPS account and an account under Atal Pension Yojana.

What are the benefits available for the contributions made to Atal Pension Yojana?

As per the clarification issued by the Central Board of Direct Taxes in 2016, Atal Pension Yojana qualifies as a pension scheme for the purpose of Section 80CCD. Therefore, the benefits are precisely similar to that of the National Pension Scheme.

What is the deduction allowed under Section 80CCD(2)?

As per the provisions of Section 80CCD (2), an assessee who is a salaried individual is eligible to claim deductions up to 10% of the salary. This includes basic pay and dearness allowance. The contribution made by the employer towards NPS can also be claimed as a deduction under this section. The deduction under this subsection is in addition to the benefits under Section 80CCD(1).

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Bharat Bond ETF

noreply@blogger.com (India Stock Picks) — Mon, 09 Dec 2019 14:46:00 +0000

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The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it.

The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio').

The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations.

But does it make sense for you, the investor, to invest in it? Lets find out.

What is the product?
As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 years and the other in 10. Upon maturity, the fund will be redeemed and the money returned to the investors.

The issue size of the 3-year variant is set at Rs. 3,000 crore (with the option to extend it by an additional Rs 2,000 crore) and for the 10-year variant is Rs 4,000 crore (with the option to extend it by Rs 6,000 crore).

What makes it stand out?
The fund has a lot of things going for it.

Low-cost structure: The USP of this fund is its wafer-thin expense ratio. At 0.0005% , this bond ETF will be the cheapest mutual fund product in India and one of the cheapest debt funds in the world. In the debt segment, costs matter a lot and this provides it a massive advantage over the more conventional debt fund alternatives.
High quality portfolio: Comprising bonds issued by government-owned entities, the default risk will be low here. In the middle of credit blow-ups, the consequent side-pocketing, and the generally prevalent risk aversion, this fund offers the kind of safety the besieged debt fund investors are seeking at the moment.
Predictability of returns: The fixed maturity feature of the ETF will provide predictability of returns. If held till maturity, the investors of the 3-year variant may expect 6.69% per annum while those of the 10-year variant can hope for 7.58% per annum. It is important, however, to note that no mutual fund guarantees returns. The above figures are simply based on the current indicative yields of the indices which these funds will replicate.
Transparency: There will be daily portfolio disclosures on an independent website. On that front too, it scores over the conventional debt funds which disclose their portfolios once a month.
Tax efficiency: As with other debt mutual funds held for more than a period of three years, investors will be able to get the benefit of indexation here. In comparison to your interest from deposits which is taxed at your marginal rate of tax, the ETF at 20% inflation-adjusted rate is a better alternative. Importantly, the timing of the launch is such that you may get indexation benefit for an extra year. For instance, the 3-year variant will provide indexation benefit for four years, if held till maturity, further bumping up your post-tax returns.

What about liquidity?
Large investors who wish to buy or sell units worth Rs 25 crore or more can directly do so with the fund house. Smaller investors would be able to transact in the units on a stock exchange. The AMC claims that it will appoint several market makers to ensure that adequate liquidity is available on the exchange. Whether they are able to actually create enough liquidity will become clear only once the units are listed.

In any case, the AMC is also planning to come up with the Fund of Fund (FoF) variants almost simultaneously (expected launch date between 13th-20th December) which puts the liquidity concerns to rest. We believe the FoF variants will be better for small ticket investors or those who do not have a demat account.

Should you invest?
At the time of the ongoing mess in the debt funds space, a fixed income fund that offers high quality portfolio, predictable returns (though not guaranteed, of course!) and ultra-low costs seems too good to be true. Bharat Bond ETF comes across as a good option for fixed income investors, particularly those whose investment horizon coincides with the maturity period of the two variants.

But the ones interested in the 10-year variant should note that it can be fairly volatile in the initial years of its existence. Its long maturity profile will make the portfolio quite sensitive to interest rate movements. But it shouldn't matter much if you are looking to hold for the entire 10-year duration.

The NFO period for retail investors will be from 13th to 20th December 2019 and those interested will be able to invest in unit sizes of Rs 1,000, but only up to a maximum investment amount of Rs 2 lakh.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Mirae Asset Focused Fund

noreply@blogger.com (India Stock Picks) — Mon, 29 Apr 2019 04:05:00 +0000

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Mirae Asset Focused Fund (MAFF) is a new fund from the stable of Mirae Asset Mutual Fund. It is an open-ended diversified equity scheme which will follow a focused approach of investing in equity and equity related instruments.

As per SEBI regulations, a focused fund is not allowed to hold more than 30 stocks and invests a minimum of 65% of its assets in equity and equity related instruments. MAFF will allocate its assets as per the given prescribed limits in equities and will also allocate some portion (up to 35% of its total assets) to debt and money market instruments from an asset allocation standpoint and to mitigate the risk.

In an endeavour to capture potential gains over the long term with a focused approach, MAFF will diversify its equity portfolio by being sector and market cap agnostic. Nonetheless being a focused fund it would entail very high-risk.

Hence, MAFF is suitable for investors who are willing to take the high risk and have an investment time horizon of at least 5-7 years while they seek to appreciate their capital.

Table 1: NFO Details

Type	An open-ended equity scheme investing in a maximum of 30 stocks intending to focus in large cap, mid cap and small cap category	Category	Diversified Equity -- Focused Fund
Investment Objective	To generate long term capital appreciation/income by investing in equity & equity related instruments of up to 30 companies. There is no assurance that the investment objective of the Scheme will be realized.
Min. Investment	Rs 5,000 and in multiples of Re 1 thereafter	Face Value	Rs 10 per unit
Plans	• Regular* • Direct *Default option	Options	• Growth* • Dividend (Pay-out and Reinvestment) Default option
Entry Load	Nil	Exit Load	If redeemed; • Within 1 year (365 days) from the date of allotment: 1% • After 1 year (365 days) from the date of allotment: Nil
Fund Manager	Mr Gaurav Misra	Benchmark Index	Nifty 200 Index (TRI)
Issue Opens:	23/04/2019	Issue Closes:	07/05/2019

(Source: Scheme Information Document)

How will the scheme allocate its assets?

Under normal circumstances, the scheme's asset allocation will be as under:

Table 2: MAFF's Asset Allocation

Instruments	Indicative Allocation (% of Total Assets)		Risk Profile
Instruments	Maximum	Minimum	Risk Profile
Indian equities and equity-related securities$*	100	65	High
Money market instruments/debt securities, Instruments and/or units of debt/liquid schemes of domestic Mutual Funds	35	0	Low to Medium

$ subject to overall limit of 30 stocks
*Equity and Equity related instruments include convertible debentures, equity warrants, convertible preference shares, equity derivatives etc. (Source: Scheme Information Document)

What will be the Investment Strategy?

The Scheme will primarily invest in equity and equity-related securities.

The fund manager will follow a focused approach on the investments. The investments will be limited to a maximum of 30 stocks. The fund has the flexibility to invest across market capitalization in large cap, mid cap and small cap category.

The focus would be to build a portfolio of strong growth companies, reflecting our most attractive investment ideas at all points of time.

The universe of stocks will comprise majorly of companies having robust business models, enjoying sustainable competitive advantages as compared to their competitors and have high return ratios.

The Fund Manager will create a robust portfolio to avoid concentration risk and liquidity risk. The Fund Managers will monitor the trading volumes in a particular stock before investment to avoid liquidity risk.

Risk Mitigation measures arising from investments in equity/equity related instruments

Being a Focused Fund, the scheme has a security concentration risk, however, the scheme will endeavour to have a diversified equity portfolio comprising stocks across various sectors of the economy to reduce the sector-specific risks.
The scheme targets to maintain exposure across different market cap segments - i.e. large, mid-cap and small cap. This shall aid in managing volatility and improve liquidity.
Any investments in debt securities would be undertaken after assessing the associated credit risk, interest rate risk and liquidity risk.

Besides, the Scheme will also invest in debt securities and money market instruments.

The credit quality of the portfolio will be maintained and monitored using in-house research capabilities as well as inputs from external sources such as independent credit rating agencies.
The investment team will primarily use a top-down approach for taking interest rate view, sector allocation along with a bottom-up approach for security/instrument selection.
The bottom-up approach will assess the quality of security/instrument (including the financial health of the issuer) as well as the liquidity of the security.
Investments in debt instruments carry various risks such as interest rate risk, reinvestment risk, credit risk and liquidity risk etc. Whilst such risks cannot be eliminated, they may be minimized through diversification.

Who will manage the Mirae Asset Focused Fund?

Mirae Asset Focused Fund will be managed by Mr Gaurav Misra.

Mr Gaurav Misra has an Honors degree (BA. Hons) in economics from St Stephen's College and an MBA from IIM Lucknow to his credit. Prior to joining Mirae Asset Mutual Fund, he was associated with ASK Investment Managers Ltd for over a decade as a Senior Portfolio Manager

Currently, at the fund house, he co-manages Mirae Asset India Equity Fund.

The outlook of Mirae Asset Focused Fund:

The fate of MAFF hinges on the performance of the stocks held in the portfolio. Although, the fund manager will follow a robust investment style that includes the following:

- A focused approach

- Flexibility to invest across market capitalisation and sectors

- An aim to build and manage a portfolio comprising of strong growth companies based on the investment process

- Building a robust portfolio that will mitigate risk

Image: MAFF's Investment Style

(Source: Mirae Asset Focused Fund One-Pager)

But considering the present volatility due to the ongoing Lok Sabha elections with investors speculating the election's outcome. Constructing the portfolio would be a challenging task for the fund manager, and if the Indian equity markets hit more turbulent waters ahead it may inflict high-risk

At present market when the S&P BSE Sensex is already near its 52-week high. Earnings will have to justify the valuations. The trail P/E of the S&P BSE Sensex and the large-cap index is currently at 28x and 26x. Even the P/E of the S&P BSE MidCap index has scaled to around 30x. Calling any of these levels as 'cheap' would be an imprudent judgement. The S&P BSE SmallCap Index is trading at a negative P/E of around 102x, but that doesn't mean valuation-wise small-caps look attractive. What it means is, many constituents of the BSE SmallCap index are making losses thereby contributing negatively to its growth.

Even though the fund has the option to invest in equity derivatives instruments for hedging or balancing the portfolio to optimize returns and mitigate the risk involved.

While the portfolio construction will be in a diversified manner with a sector agnostic and across market cap, allocating a dominant portion to large caps can offer stability to the investment portfolio. Investing in large blue-chip companies with strong balance sheets and proven track records in the portfolio could help ride the wave of short-term volatility to a certain extent. In present conditions, having a concentrated portfolio of small and mid-caps will prove to be more harmful. Hence, how the fund manager constructs the portfolio is crucial and remains to be seen.

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How to choose a SIP Fund

noreply@blogger.com (India Stock Picks) — Thu, 13 Dec 2018 11:53:00 +0000

Are there any best SIPs?

SIPs are a medium to invest in mutual funds. Hence, there's nothing like 'best SIPs'; you need to select best or winning mutual fund schemes to invest so that SIPs work best for your objective of wealth creation to achieve long-term financial goals.

So, selecting an appropriate mutual fund scheme for your SIPs is very crucial.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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How to PPF Account extension after maturity

noreply@blogger.com (India Stock Picks) — Thu, 13 Dec 2018 03:12:00 +0000

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed.

Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status. Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free.

What are your options when a PPF account matures?

1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened.

2) The subscriber can retain his/her PPF account after maturity without making any further deposits for any period without limit.

3) The balance in the account will continue to earn interest till it is closed.

4) The subscriber can make one withdrawal of any amount in each financial year.

5) If the subscriber wants to make further contributions after the PPF account matures, it can be extended in blocks of five years.

6) There is no limit on the number of times you can extend the PPF account.

7) But if the PPF account holder wants to continue with the contribution-mode after maturity, he/she has to submit Form H within one year from the date of maturity of the account.

8) If the subscriber fails to submit Form H but continues to make deposits in the account, the fresh deposits into PPF account will not earn any interest.

9) Also, in this case, the fresh deposits in the PPF account will not be eligible for deduction under Section 80C of the Income Tax Act.

10) In case the person has opted to extend his account by a block of five years, during each block period he/she can make one withdrawal not exceeding 60% of the balance at the commencement of each block. This amount can be withdrawn either in one installment (one year) or in more than one installment in different years, not exceeding one withdrawal in a year.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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SIPs Can mke you Rich

noreply@blogger.com (India Stock Picks) — Wed, 12 Dec 2018 15:02:00 +0000

Over the last three to five years, an additional development in the actual mode of paying for the SIP investment has improved matters further. Earlier, SIPs meant writing a pile of cheques and giving them to the fund. Obviously, there was a limit to this, generally anything from 12 to 36 months. As a result, investors felt that an SIP was a fixed tenure plan. When the cheques would run out, investors would take their time to go through the whole effort again. At that point, if the markets were looking depressed, they would not do it at all.

Now, investors generally give an ECS mandate for the monthly SIP investment amount to be directly transferred from their bank accounts. Generally, this is a perpetual mandate. Stopping the SIP requires an instruction to be registered. Earlier, stopping was automatic but continuing involved a fresh pile of cheques to be written. In my experience with investors, I have felt that this change of defaults has had a huge impact.

The kind of returns that one can get with SIPs are truly mind-boggling. Here are a few very long-term examples. I took up four funds that have been around for decades and calculated what would have happened if I had done a modest SIP for the last 20 years

It turns out that just a small investment of Rs 5,000 a month over two decades left me with sums of Rs 1.29 crore, Rs 1.85 crore, Rs 1.21 crore, and Rs 2.05 crore for the four funds. The amount invested in each case was just Rs 12 lakh (Rs 5,000 a month for 20 years). An investment like this can change the life of a middle class person. However, there's no special complexity in doing this. Just something straightforward, done over a long period.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Adding Spouse as Co-owner when Buying a House

noreply@blogger.com (India Stock Picks) — Wed, 12 Dec 2018 03:08:00 +0000

It makes sense to add spouse as co-owner as it helps in enhanced loan eligibility and provides tax benefits to both co-borrowers on interest and principal repayment. Also, succession of a jointly owned property is smoother compared to the lengthy process involved in case of single ownership.

Here are four benefits of owning a house jointly.

Lowers stamp duty

One of the significant additional expenses that a buyer has to bear while buying a house is stamp duty and registration fee for registration of property papers in the buyer's name.

However, "you may prefer to have your wife's name as the first owner as it can help you save a lot of money towards paying the stamp duty

In many states, stamp duty fees for registration of property is higher for male buyers and lower for women. For instance, in New Delhi, a woman has to pay 4% stamp duty compared with 6% for a man; if the property is bought jointly in the name of a man and a woman, buyers have to pay a stamp duty of 5%.

Similarly, in Haryana, a man is required to pay 8% stamp duty in urban areas and 6% in rural areas, while a woman has to pay 6% in urban areas and 4% in rural areas.

Increases loan eligibility

Most property purchases are financed through home loans. When giving out a loan, lending institutions first determine the eligibility, which primarily depends on the income of the borrower. Typically, loan eligibility is around five times the annual salary of the borrower. However, "If the borrower draws insufficient income, has a low credit score or a low repayment record, a co-borrower's involvement is a blessing for the loan applicant and the lender is assured of timely repayment. Financial lenders require all co-owners of a property to be co-applicants of the home loan. However, all co-applicants may not necessarily be co-owners

In case of joint applicants, incomes of all the borrowers are taken into consideration to determine the loan eligibility and can enhance the loan amount. For instance, if your yearly income is about ₹10 lakh, you may get a loan of up to ₹50 lakh. If your spouse also earns ₹10 lakh a year, both of you can jointly borrow up to ₹1 crore. Besides, "having women as a co-applicant could also get you concessional interest rate at several financial institutions. It could either be your mother, sister, wife or daughter, but they need to be the first home buyers

Gives tax benefits to both

Repayment of home loan can give tax benefits to both joint owners of a house.

Payment of stamp duty and registration fee qualifies for deduction up to ₹1.5 lakh under Section 80C of the Income Tax Act, 1961. Principal repayment in a year can be claimed up to the overall limit of ₹1.5 lakh allowed under Section 80C of the Act. The interest paid on the home loan is allowed for deduction under Section 24(b) of the Act up to ₹2 lakh a year, in case the home loan is acquired for a self-occupied house.

Joint borrowers who are also joint owners of the property can each claim deduction separately up to the above mentioned limits, as per their ownership share. However, jointly they cannot claim more than the actual amount of home loan repaid.

It is always beneficial when both partners contribute an equal proportion while buying a property. This will help them in getting equal taxation and capital gains benefits

There are other tax benefits as well. In case you plan to rent out the property, rental income can be shared by both the owners and may attract tax at a lower rate. For instance, if both the owners earn ₹8 lakh per annum and the property they jointly own with equal shares is rented out at ₹4 lakh per annum, ₹2 lakh each will be added to their incomes. In other words, their total individual income would be ₹10 lakh each, which comes below the slab of 30%. In the same example, if the property was owned by only one of them, the total income of that individual would have become ₹12 lakh, pushing the person in the 30% tax bracket.

Eases succession

In case the property is jointly owned by both the spouses—as a joint owner or a joint tenant with equal shares in the property—it may ease up succession issues. At the legal level, "doing so (joint ownership) also ensures that the spouse has no problems when it comes to claiming his or her rights of the property in the case of the demise of the other spouse

"In case one of the spouses dies, there will not be much stress and work involved to get the mutation done in the name of the surviving owner. It is easy and saves you charges involved for mutation

While there are many advantages of buying a home jointly with spouse, remember that problems could arise if your relationship sours.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Hierarchy of investment needs

noreply@blogger.com (India Stock Picks) — Fri, 07 Dec 2018 11:46:00 +0000

We know how investing is different from just saving. If we put our saved money somewhere where it will grow, then that's investing. However, there are a number of possibilities available when we want to invest, and it isn't possible to make sensible choices without having a way to classify things.

However, let's not jump into classifying investments right away. Before we do that, we need to classify our need for making an investment. Investments can be made for a huge variety of needs. You could be saving for emergency medical funds which are usually required at a moment's notice. Or you could be saving for your retirement which is a few decades away, or anything in between.

We have created a useful framework for thinking about these investment needs. We divide investment needs into four levels. Each level is more fundamental than the ones that come after it. You should satisfy the need at each level before going on to the next one.

Those who know a bit about psychology may recognise this system as being based on the 'Hierarchy of Needs', a concept proposed by psychologist Abraham Maslow. Maslow's hierarchy dealt with basic human needs like food, shelter, etc. Basically, human beings deal with their higher needs after the simpler ones are satisfied.

So here's Value Research's Hierarchy of Investing Needs:

LEVEL 1: Basic contingency funds
This is the money that you may need to handle a personal emergency. It should be available instantly, partly as physical cash and partly as funds that can be immediately be withdrawn from a bank. Online banking and ATMs make it relatively simple to get this organised.

LEVEL 2: Term insurance
Calculate a realistic amount which allows your dependents to finance at least short and medium-term life goals if you were to drop dead or be struck with a debilitating injury or disease. You should have an adequate term insurance before you think of any savings.

LEVEL 3: Savings for foreseeable short-term goals
This is the money needed for expenses that you plan to make within the next two to three years. Almost all of this should be in minimal risk, deposit-type savings avenues.

LEVEL 4: Savings for long-term foreseeable goals
Same as level 3, except the planned expenses are more than three to five years away. This level should be invested in equity and equity backed investments like equity mutual funds.

One could think of many levels beyond this and really, the details matter much less than the concept. Depending on one's circum-stances, any of the levels may have to be modified. For example, you may have enough income-producing assets to make insurance relatively less important.

However, this doesn't decide how much to invest in each need. This system aims at preventing you from going to higher level unless the lower one is fulfilled. If you haven't put emergency cash in a savings account, then don't buy term insurance. If you don't have term insurance yet, then don't start putting away money for your daughter's college education, and so on.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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e-diamonds

noreply@blogger.com (India Stock Picks) — Tue, 04 Dec 2018 03:10:00 +0000

The lure of buying diamonds might be in their glitter, but you can even buy diamonds in the electronic form, through the Indian Commodities Exchange (ICEX) Ltd as derivative contracts. ICEX is a Sebi-registered commodities exchange that offers diamond futures contracts for 30 cent, 50 cent and 1 carat diamonds.

What is it?

Like in other exchanges, you can buy and sell these contracts, which are priced at the wholesale market rate (ex-Surat) rather than at the retail price of polished diamonds. You can hold them in electronic mode or choose to take physical delivery. The contract units begin with 1 cent (100 cents make 1 carat). The shape, carat, colour, clarity, cut and other specifications will be mentioned as part of the contract. The standard contract has colour of 'H' level with VS2 clarity.

There are limits on the maximum order that can be placed per individual. You can even start with a small amount and invest via systematic investment plan (SIP) to own a 1-carat diamond. SIP route lets you buy smaller quantities.

What works…

For many who don't have access to a trusted jeweller, this is an exchange-based platform to buy diamonds, which means the price discovery undergoes a process.

The diamonds are certified by International Institute of Diamond Grading and Research which is a De Beers Group company and hence, there is verification of the value of the diamond you take delivery for. You can also decide to sell the diamond back to the exchange.

...What doesn't

Unlike the gold market, diamonds so far don't have a standardised market against which you can check pricing. Discounts and negotiated prices can exist elsewhere too. Diamonds are available in various configurations whereas this exchange has only a specified configuration for each of the three underlying contracts of 30 cents, 50 cents and 1 carat diamonds. For example, if you want to buy a contract for a 1-carat diamond with a clarity that is, say, at a level lower or higher than VS2, you may not be able to. If your interest is primarily in buying diamonds for jewellery, once you receive the stones from these contracts, you will still have to go to a jeweller to make what you want. If you are buying them as an investment, one must first understand whether the commodity is rare enough to warrant a stable price rise through the years.

This platform can work well for those who are already well versed with diamond specifications and pricing or maybe use it for hedging. One should also to do a background check on the exchange, which is new, although being a Sebi-registered entity is an advantage. While supply of the diamonds is limited, it is not a standardised and systematic market for which price trends can be extrapolated meaningfully; a lot depends on individual diamonds and their demand.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Know about CTC

noreply@blogger.com (India Stock Picks) — Mon, 03 Dec 2018 11:47:00 +0000

HAVE never understood my payslip till date, says Avni Rustagi, a native of Punjab. Avni, 25, moved to Bangalore four years back in the hope of turning her dream into reality. In that order, she took up work as a designer with an Information Technology firm. Avni pays Rs 10,000 as rent for a spacious apartment, but ask her about how she manages her other expenses and she throws her hands up in the air. Numbers scare me, she admits. I don`t know a thing about finances. She says, For instance, I don`t even understand my pay structure or CTC as it is called, what I get in hand or why I get that much. Wealth realised that Avni's dilemma is a common problem with most working people. The transformation from CTC to take home leaves mostly everyone confused. Let`s decode and understand what happens when CTC becomes take home.

What is CTC?

CTC is nothing but the cost that the company incurs to employ you and keep you employed. It includes your pay and anything else that the company may incur to keep you in employment. Here is Avni`s CTC or Cost to Company.

Particulars-Rs (per annum)

Basic 480,000
Dearness Allowance 48,000
Entertainment Allowance 12,000
House Rent Allowa`nce 96,000
Conveyance Allowance 12,000
Overtime Allowance 12,000
Medical reimbursement 15,000
Gross salary 675,000
Company`s contribution to provident fund 57,600
Annual CTC 732,600
Monthly CTC 61050

Avni`s salary package is quite transparent. However, each company has its own method of calculating CTC. Companies may offer an attractive CTC pay structure but the take home may be substantially lower. Here are some components that are commonly used in the CTC:

1. IT companies often add training costs in the CTC. These costs are incurred by the company for training the employees. So, naturally these do not come in the form of take home.

2. Banks include interest subsidies in CTC. That is, if you are a bank employee, you are entitled to a discounted rate on loans.

3. Performance bonuses are also included in the CTC. These are variable components and you will be paid out a percentage of the bonus depending on your performance.

4. Companies may include the cost of group medical or life insurance. Some companies may add food subsidies, that is, you may be getting a subsidy on your lunch in the office canteen.
5. Some companies include gratuity in the CTC. Gratuity is a sort of bonus that is paid out when you resign or retire from your company. The catch: You are entitled to gratuity only after completing 5 years in the company. Some companies who include gratuity as part of CTC pay you the propornate amount as ex-gratia, in case you leave the company before completing five year as required.

SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich - Best ELSS Funds

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NCDs are a Good Investment Option

noreply@blogger.com (India Stock Picks) — Mon, 03 Dec 2018 03:18:00 +0000

Non-convertible debentures(NCDs) and fixed deposits issued by companies can turn out to be good investment alternatives given that bank fixed deposits are not offering attractive rates. With several companies vying for investors' attention with these instruments, investors may be spoilt for choice.

Fixed income investors have endured muted returns for some time. The one-year fixed deposit at SBI currently fetches 6.65%, while the five-year deposit earns 6.75%. Even bond funds have fetched insipid returns, clocking around 6%. But recent NCD issues suggest good times. On May 22, Dewan Housing Finance (DHFL) launched its ₹12,000-crore NCD issue, offering a coupon rate of up to 9.1%. It received subscriptions worth ₹10,000 crore the very first day, getting fully subscribed soon after.

Last week, JM Financial Credit Solutions' ₹750 crore issue — offering up to 9.75% coupon rate — got oversubscribed the first day. The rates NCDs are offering are at least 200-250 bps higher than bank fixed deposits of equivalent tenure. For investors in the lower tax brackets, these returns are very attractive. At 9% coupon rate, the post-tax return for an investor in the 10%, 20% and 30% tax brackets works out to 8.1%, 7.2% and 6.3% respectively. Most debentures offer 0.25% higher returns for senior citizens. Investors can opt for monthly, annual or cumulative payout based on their needs.

While the rates are attractive, investors should choose the tenure with care. Most NCDs offer tenures ranging from one to 10 years. Longer tenures typically offer higher rates of interest. With interest rates headed upwards, it is likely that upcoming NCD issues will offer even higher rates than those available now. So locking in a large sum of money at current yields for a long tenure may not make sense. If you opt for a lower tenure instrument instead, it may fetch a lower coupon but you could invest in a higher yield NCD when the current instrument matures.

Alternately, you could opt not to jump in now and wait for higher yield NCDs to hit the market.

RBI is likely to hike interest rates in the near future. Investors should wait and watch before jumping in. Another option would be to deploy part of the surplus money at current rates. You can invest the remaining money as and when more attractive NCD offers come through.

There is no clarity on the interest rate situation. Rates may remain stagnant for some time. In this scenario, it would make sense to lock-in at current rates with part of investible surplus. Either way, it is a better idea to spread your money across two-three companies rather than risking the entire capital with a single issuer.

DON'T IGNORE CREDIT PROFILE

With NCDs, the high yield often comes with an added element of risk — of the company not being able to repay its obligations. Hence ascertain the credit rating assigned to the issue. Typically, companies rated lower than AA carry a high degree of credit risk, even though they offer a much higher coupon rate. Find out if the issuer has a healthy track record of repayment." Avoid opting for unsecured debentures that offer higher coupon; a secured NCD issue is a safer bet as it allows investors a claim on identified company assets in the event of non-payment of dues. AAA and equivalent rated instruments are safer bets. If at all one has a risk appetite, a small portion of the portfolio may be deployed in lower rated instruments to boost yield. He feels investors should opt for credit risk funds instead. These allow one to capture higher yields, yet the exposure is spread across companies and the onus of evaluating the credit profile of businesses lies with the fund manager.

Even though NCDs are offered in demat mode and can be traded in the secondary market, liquidity is often poor. This may not allow investors to exit at the desired price and time, an issue not faced by credit risk funds.

ALTERNATIVES

Investors could also look beyond NCDs. Several company fixed deposits are on offer at attractive coupon rates. Kerala Transport Development Finance Corporation is offering 8.5% on its 36-month fixed deposits under both regular and cumulative payout option. Shriram Transport Finance – Shriram Unnati fixed deposit fetches 8.15% over a four-year tenure under yearly and cumulative payout option.

An investor can also park money in small finance banks. Fincare offers a coupon rate of 9% for two to three year tenures.

ESAF Small Finance Bank offers 8.75% on its 365-727 day fixed deposit while Ujjivan Small Finance Bank offers 8% for similar tenure. But like NCDs, check the credit profile of the issuer here too.

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Invest Savings from FDs to Debt Funds

noreply@blogger.com (India Stock Picks) — Fri, 30 Nov 2018 11:20:00 +0000

No matter what savers are hoping for, interest rates are going to stay low for years to come. It is time to study the investment alternatives.

A few hiccups along the way notwithstanding, it's more than likely that India is heading for lower interest rates for years to come, if not for decades. In fact, if one steps out of the ivory tower of economists and into the real life of savers, a huge amount of damage has already been done. A measly 2.5 - 3.5% on savings bank deposits and 5-7% on other deposits are going to be the normal from now on.

Most Indian savers, including retirees who need income, are heavily invested in bank fixed deposits. Their earnings have fallen by 25% or more in the past three years. So is there a solution? As it happens, there is. There are mutual fund products that fit the bill perfectly. They not only give you higher returns than the banking products, but are also liable for a lower tax outgo, making the effective return very attractive. In fact, their liquidity and convenience are also superior compared to fixed deposits, especially if you deal through the special apps that many funds have released for the purpose.

Sebi's recent reorganisation of fund categories has somewhat changed the lie of the land, so the types of mutual funds that work well as substitutes for bank accounts are liquid funds and ultra-short duration funds. These funds give predictable and stable returns with negligible volatility. The precise definitions that Sebi has now enforced have made them even more stable. Over the past year, liquid fund returns have been an average of 6.85%, while that of ultra-short duration funds have been around 6.47%.

While these compare well with the deposit products they can replace, the real kickers are convenience and tax factors. Liquid funds can be invested in and redeemed through a smartphone-based app for many fund companies. Through these apps, you can invest instantly by transferring money from your bank accounts. More to the point, you can redeem the investments and the money gets transferred to your savings account in five to 10 minutes. So you are able to earn interest that is 1.5 times that of a savings account and, yet, have a liquidity compromise of only a few minutes.

The benefits of funds over fixed deposits go much beyond a simple comparison of returns. The different taxation structure means there's a bigger difference in post tax returns. The tax difference arises from the fact that returns from fixed deposits are classified as interest income, while mutual fund returns are classified as capital gains. For interest income, you have to pay tax every year for what you have earned that year. If your total interest income from a bank (all accounts and deposits together) exceeds ₹10,000, then the bank also deducts TDS at 10%. In fact, if the bank does not know your PAN, it will deduct 20%. This means that a part of your return is not available for compounding because it is taken out and paid as tax every year.

There is a further advantage to the mutual fund option if you stay invested for more than three years. If you redeem after three years, then the gains are classified as long-term capital gains and are taxed after indexation. Essentially, you get taxed only on inflation-adjusted returns. Again, this does not happen with FDs. Applying all these factors, a three-ear investment in a short-term fund will leave you with almost twice the returns as an FD over the same period, and with excellent liquidity.

Earlier, this kind of fine-tuning could be expected only from a handful of knowledgeable and involved investors. However, with low interest rates, the payoff is huge, and a lot of us could benefit substantially from shifting away from deposit-type products and towards mutual funds.

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Calculate RETIREMENT Amount

noreply@blogger.com (India Stock Picks) — Fri, 30 Nov 2018 03:07:00 +0000

An ideal retirement corpus should take care of all your expenses after you stop working. But can you calculate the amount required? It involves taking into account life expectancy, interest rates, inflation and the time value of money...and can be a bit tricky. Here we explain how to use MS Excel to calculate the amount easily. But first, let's understand some basics.

The concept of time value of money states that the worth of a rupee received today is more than a rupee received at a later date because of its earning potential. The concept of time value has two elements: Compounding and discounting. Compounding helps to estimate future values whereas discounting helps to estimate present values. For calculating your retirement corpus, it is the present value that matters.

For example, an investment product promises ₹8 lakh in 10 years if you invest ₹4 lakh today. Given interest or term deposit rates of 8% per annum, will this investment product be profitable? You will have to find out the present value of ₹8 lakh at 8% discount rate to arrive at the right answer. Present value is calculated by dividing ₹8 lakh by (1+r) ^n, where 'r' is the discount rate (or interest rate) and 'n' is the tenure of investment. The present value of ₹8 lakh works out to be ₹3.7 lakh.

Since the present value of the amount that the product promises to pay (fund inflow) is less than the amount invested (fund outflow), the product is not profitable. In other words, the net present value of the investment product is negative. Net present value is the difference between the present value of cash inflows and present value of cash outflows.

If the same ₹4 lakh is invested in an FD for 10 years, offering 8% annual interest, the maturity proceeds work out to be ₹8.63 lakh (assuming no tax)—₹63,000 higher than the aforementioned investment product.

Calculating the present value of an amount gets complicated, if the investment generates a series of payments over a period of time. To calculate the current worth of such an investment, the present value of each payment in the entire series of payments needs to be derived. Technically, one needs to find out the present value of an annuity.

Estimating one's retirement corpus involves calculating the present value of an annuity. This is because, one expects to generate a stream of payments—monthly, quarterly or annually—from one's retirement corpus for a given number of years at a certain rate. Such stream of payments seek to take care of one's post-retirement expenses—based on one's current expenses and assumed inflation rate.

A 38-year-old with current annual expense of ₹6 lakh can calculate his annual expenditure requirements when she retires at the age of 60, based on an assumed annual inflation rate over 22 years (the period after which she will retire).

For instance, at 5% assumed inflation she will need ₹17.5 lakh—₹6 lakh x (1+5%)^22. The ideal retirement corpus must generate a stream of ₹17.5 lakh annually for 25 years after retirement, assuming life expectancy of 85 years. Such a corpus can be arrived at by adding the present value of each stream of ₹17.5 lakh discounted at an appropriate rate. The appropriate rate is generally the average long-term (10-year) yield on government securities. Additionally, the post-retirement inflation also needs to be taken into account.

Although the methodology appears complex, MS Excel's NPV function can help you do the calculations easily. NPV requires you to input the discount (or interest) rate and the series of expected inflows or estimated expenses.

At 7% discount rate and assuming no inflation, the present value of the annuity works out to be ₹2.04 crore. So, in our example, the working professional will have to accumulate ₹2.04 crore for his retirement. However, if we assume post-retirement inflation of 4.5% per annum, he will have to accumulate ₹3.12 crore. One can play with the numbers to see how changes in inflation, discount or interest rates changes the desired corpus.

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PPF vs ELSS Tax Saving Mutual Funds

noreply@blogger.com (India Stock Picks) — Thu, 29 Nov 2018 13:54:00 +0000

The Public Provident Fund (PPF) and equity-linked saving schemes (ELSS) are popular investment options that both qualify for income tax deductions. A deduction reduces your overall tax liability. Contributions up to Rs 1.5 lakh a year qualify for tax deduction under Section 80C. Financial planners say that when it comes to investments in the PPF and ELSS mutual funds, investors should look at these investments not just from a tax-saving perspective but one that will help achieve their financial goals. ELSS mutual funds invest in equity shares of companies across sectors and market capitalization and have a three-year lock-in.

An ELSS mutual fund is quite the same as a diversified equity fund, other than tax deduction benefits and the three-year lock-in. ELSS investments come with a lock-in period of three years, which is lowest among Section 80C investments. Investors should understand ELSS mutual funds are equity market-linked products.

1) The PPF is a 15-year government-backed savings option offered through banks and post offices. Thereafter, it can extended further in batches of five years.

2) The interest rate on the PPF is revised every quarter and is benchmarked to yields on government securities. Currently, the PPF fetches an interest rate of 7.6%.

3) In the PPF, you can maximise your returns by investing early in the financial year so that your deposits can earn interest for the entire year.

4) The minimum amount that must be deposited in a PPF account in a financial year is Rs 500 and the maximum allowed is Rs 1.5 lakh.

5) From the seventh year, you can make partial withdrawals from your PPF account. Apart from income tax benefits, the PPF is suitable for conservative investors who are looking at long-term financial goals like a child's education or retirement, say financial planners. The interest and maturity proceeds are exempted from tax.

6) Premature closure of a PPF account is allowed only under specific conditions such as expenditure towards medical treatment. For this, a PPF account must have completed at least five financial years.

7) ELSS or tax-saving mutual schemes have a three-year lock-in period. You can partially or fully redeem your ELSS or tax saving mutual fund investments after three years.

8) Financial planners suggest investors to opt for systematic investment plans (SIPs) in tax saving mutual funds to help spread their spread their investments throughout the year.

9) The lock-in of three years also applies to SIPs. In other words, every SIP instalment in a ELSS fund is subject to a three-year lock-in.

10) Long term capital gains from equity mutual funds, including ELSS funds, above Rs 1 lakh will be taxed at 10%. ELSS funds come with both growth and dividend options. Mutual fund houses have to pay a dividend distribution tax or DDT of 10% on dividends declared under equity schemes, including ELSS funds. This effectively reduces the return from dividends from equity funds.

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Focused Funds

noreply@blogger.com (India Stock Picks) — Thu, 29 Nov 2018 03:07:00 +0000

They are bit more Risky. The risk comes in two forms.

One is the likelihood of a fund manager losing money in a certain stock. I think if a fund manager goes wrong, the possibility of significant loss in a focused fund is far higher. Because in a focused fund a position in a stock can well be in the region of 5 to 10 percent.

The other is that focused funds can be far more volatile because you have fewer stocks. Nowadays, we are seeing a volatile market. So, the days on which the market goes down you see the concentrated fund falling much more than the market, compared to a more diversified fund.

I would say volatility is not as much of a risk on a 5 to 7 year basis. Because volatility, if you stay invested, is not a risk. But the risk of the fund manager going wrong is reasonably high.

So, yes, focus funds do come with high risk of volatility as well as the penalty for a fund manager going wrong with his selection is very high. And if he goes wrong with a couple of things, it could be a disaster.

But, I guess, that is where evaluation of a fund manager for a focused fund comes in handy. As a fund performs well and gets more money, it tends to become more diverse. So, I think 30 also gets you reasonable diversification.

So, check two things. You should look at the experience of the fund manager, of what he has set out to do and what are the quality filters. That apart, make sure even if it is a focused fund, it has at least 20 to 25 stocks, which is reasonable diversification for an investor. If you are comfortable with the volatility some of the focus funds look very promising.

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Impact of rising interest rates on Equity Mutual Fund Investors

noreply@blogger.com (India Stock Picks) — Wed, 28 Nov 2018 11:27:00 +0000

Rising interest rates in all eventuality can apply the brakes on a rising stock market. Of late, returns from market indices, especially mid- and small-cap indices have dwindled. "Interest rates act like gravity on valuations; higher the interest rates in a country, lower are the equity valuations. It is an inverse correlation

Reasons such as rise in oil prices, faltering health of public sector banks, increasing inflation among others may lead to the equity market finding new lows in the near future. The offset is that corporate earnings have been robust this quarter (top and bottom lines) for a substantial portion of the market. The question is what level will crude become an impediment to earnings, and we think we are already at levels that will result in a dampening of consumer willingness to spend.

That has repercussions for equities and continued rise in crude is likely to impact markets negatively

What to do: These macro economic factors should not deter a long term investor in equities and equity mutual funds. We would point out though, that the macro conditions can change quickly, so investors need to work within an asset allocation framework and stick to a plan that takes advantages of moves in the market, rather than letting these moves shake them out of a long term investment plan

After the recent reclassification of mutual funds, tracking the performance by investors may become easier. Going forward, investors will benefit by focusing on their fund's relative performance against its benchmark as well as the peer group during different timeframes

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Not Filing IT Returns May Land You In Prison

noreply@blogger.com (India Stock Picks) — Wed, 28 Nov 2018 03:08:00 +0000

As citizens of India, our responsibility towards the country does not end with paying taxes. We have to file income tax returns (ITR) every year for which the government allows us four months from April 1 to July 31. To crackdown on stragglers, the government has introduced penalties on late and failure to file ITR. Let's discuss in details.

Penalties: Sec. 276CC

Wilful failure to furnish ITR during the prescribed time resulting in tax evasion exceeding Rs 1 lakh attracts a fine and imprisonment that can be from 6 months to 7 years. In other cases, it could be a fine and imprisonment of 3 months to 3 years.

However, a penalty cannot be levied unless there is substantial evidence of wilful failure. As the provisions of the Income Tax Act are amended frequently, it is impossible even for tax experts to know all the provisions at any given point of time. Hence, ignorance of law is often cited as an excuse to escape the penalty.

From April 1, 2018, the government introduced a fine of Rs 10,000 for those who fail to file the ITR by July 31. If you file ITR after the due date but before December 31, the penalty will be Rs 5,000. Small taxpayers with income not more than Rs 5 lakh per annum will not be penalised more than Rs 1,000.

Scrutiny Assessment

As a relief to senior citizens, the department has decided not to scrutinise any returns filed by those above the age of 60 years and those whose gross total income is less than Rs 10 lakh.

Annual Information Report

Various authorities (not individuals) are required to send annual information report to the department of all persons, including NRIs, undertaking any one of the following transactions:

Banks — (a) Cash payment of Rs 10 lakh for purchase of DDs / POs, RBI Bonds, etc. (b) Cash deposit / withdrawal of Rs 50 lakh from current account. (c) Cash deposit of Rs 10 lakh in any one or more accounts, other than current account and time deposits. (d) Time deposits, (other than those through renewal of another time deposit) of Rs 10 lakh (e) Payment in cash of Rs 1 lakh or Rs 10 lakh by any other mode, against credit card.
Company — Receipt of Rs 10 lakh for acquiring bonds, debentures or shares, including share application money.
Listed Company — Buyback of shares of Rs 10 lakh.
MFs — Receipt of Rs 10 lakh for acquiring units.
Forex dealer — Receipt of Rs 10 lakh for sale of forex, including against forex card or expenditure in such currency against debit/credit card or issue of traveller cheque or draft.
IG registration or registrar/sub-registrar of property — Purchase or sale of immovable property for Rs 30 lakh or as valued by the stamp valuation authority, whichever is higher.
Any person liable to audit u/s 44AB — Receipt of cash payment of Rs 2 lakh by any person for sale of goods and services, other than those specified above.

The aggregation rule is applicable for all transactions except for purchase or sale of immovable property and cash payment for GST.

Take care to remain out of being a reportable person, as much as you can.

Taxpayers can view their consolidated annual tax credits in Form 26AS enabling them to resolve any discrepancies arising due to incorrect quoted PAN, non-filing of TDS returns, non-deposit, lower deposit of TDS by the deductor, etc.

Refunds are made directly to the taxpayers' bank accounts, with intimation through SMS or e-mail.

Tax and PAN related grievances can be redressed online through e-Nirvan, a paperless facility launched by CBDT. Alternatively, one can visit the Aaykar Seva Kendra. However, suggestions or matters related to the Court, RTI, religion, services of government employees or foreign governments cannot be redressed through this mechanism.

Filing income tax returns is not just an act of responsibility, but it also helps in getting loans, credit cards and gaining benefits of adjustments against losses. Hence, file income tax returns on time

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SWP or Dividends

noreply@blogger.com (India Stock Picks) — Tue, 27 Nov 2018 16:45:00 +0000

Mutual Fund SWPs are better option

When your clients are looking to generate regular cash flow from mutual funds, they often find it difficult to decide whether or not they should redeem their investments. Currently, mutual fund investors have two options to generate regular cash flow, systematic withdrawal plan (SWP) or dividends. Let us understand what is best suited for your clients.

Dividends in mutual funds

Choosing the dividend option for a mutual fund scheme entitles an investor to receive dividends declared by the fund scheme periodically. Dividends are tax-free for investors. The fund house though has to pay Dividend Distribution Tax (DDT) on such dividends on behalf of investors. This means investors indirectly bear the tax burden on dividend income.

However, in case of close-ended schemes or schemes with a lock-in period like ELSS, the dividend option is preferable. This is because your clients will receive part of the profits throughout the investment tenure. Even though the investment is locked in, they would still benefit from some liquidity from time to time.

Systematic Withdrawal Plan (SWP)

Just as systematic investment plans (SIPs) allow investors to make investments in mutual funds periodically, SWPs redeem your investments periodically. SWPs give investors the flexibility to choose the periodicity and amount of redemption.

Why SWPs score over dividends

Here are three reasons why an SWP is a better option than dividends

Consistent cash flow: The dividend option does not guarantee regular cash flow since AMCs declare dividends after realising profits, if any. However, with SWPs, your clients can choose to have regular cash flow by redeeming their investments. There is no ambiguity on cash flow with SWPs.
Control over quantum of cash flow: With SWPs, your clients can decide the amount and timing of cash flow depending on requirement. Simply put, your clients cannot rely on the dividend option to meet regular requirements.
Tax efficient: The government levies DDT on dividends arising out of mutual fund investments. Since the NAV of the fund is reduced to the extent of dividend, investors end up paying the tax from their MF investments. SWPs, on the other hand, are treated as redemption from mutual funds. The tax treatment of such redemption is just like growth options in mutual funds.

Hence, SWP scores over the dividend option. However, if the periodic payouts are considerably higher than the returns generated by the mutual fund, you should consider recommending the dividend option as the investment amount might get exhausted. There is no such fear with the dividend option, as any dividend has to be declared only out of profits realised.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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SBI Focused Equity Fund

noreply@blogger.com (India Stock Picks) — Tue, 27 Nov 2018 11:50:00 +0000

Top SIP Funds Online

SBI Focused Equity Fund

How has the SBI Focused Equity Fund performed?
With a 10-year return of 17.82%, the fund has outperformed both the index (12.43%) and the category average (14.31%) by a good margin.
The fund has comfortably beaten the multi-cap category over the past decade.

SBI Focused Equity Fund performance (%)

The fund has outperformed across time periods.

Yearly performance (%)
The fund has mostly delivered healthy outperformance in recent years.

Where does the SBI Focused Equity Fund invest?
The fund has hiked presence in large-caps in recent years.

Top 5 sectors in portfolio (%)

The fund is significantly overweight in auto, engineering and metals.

SBI Focused Equity Fund Top 5 stocks in portfolio (%)
The fund takes outsized positions in its top bets.

How risky is it?

Should you buy SBI Focused Equity Fund?
This fund has been rechristened as a focused fund, but even in its earlier avatar as SBI Emerging Businesses, it maintained a concentrated portfolio. While the fund remains market-cap neutral, it has hiked its presence in large-caps in recent times. But it retains its mid- and small-cap tilt, where its exposure remains higher relative to many peers. The degree of concentration is also comparatively higher with the fund taking outsized positions in

high-conviction bets and several small positions at the tail-end of the portfolio.

It has favoured financials with nearly 40% exposure to this segment. Its performance has been consistent in recent years, delivering healthy alpha relative to peers, making it a worthy bet for those seeking an aggressive, focused strategy.

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Critical Illness Plan

noreply@blogger.com (India Stock Picks) — Tue, 27 Nov 2018 02:59:00 +0000

Apart from a health insurance policy that pays for hospitalization, critical illness insurance plans are also very popular in the health insurance segment. A critical illness policy compliments a plain vanilla health plan, so ensure you don't substitute your health policy with a critical illness plan.

What are critical illness plan?

There are two types of health plans: indemnity and defined benefit plans. A basic health insurance is an indemnity product that covers hospitalisation expenses, pre- and post-hospitalisation expenses and listed day-care procedures.

Defined benefit policies pay a stipulated sum on an insured event. A critical illness policy is a defined benefit plan that pays the total sum assured on diagnosis of an insured critical illness; it doesn't matter what the hospital bill is. Also, most of the plans terminate after the first claim; few plans cover multiple critical illnesses but mostly cap the number of illnesses they can cover.

A critical illness policy helps cover incidental expenses and supplements your income in case you are unable to work: a plausible fallout of a critical illness.

The caveats

You need to keep in mind some caveats, the most important being the waiting period.

Most health plans come with an initial waiting period. A critical illness plan has that and another specific one: the survival clause.

This kicks in if a policyholder is diagnosed with a critical illness. Most insurance companies have a survival period of 30 days and it's only after the policyholder has survived this period that the claim is settled.

Some plans may waive off this clause.

What you need to do

The most challenging aspect of buying a critical illness policy is understanding what is insured. It's not just looking at the number of critical illnesses covered and going for the one with the maximum number of illnesses covered, but also about understanding the exact definition of the illnesses to avoid unpleasant surprises at the time of making a claim. For instance, a critical illness plan covering cancer may not cover the early stages of cancer.

The second thing to understand and think about is how you buy a critical illness plan. These policies can be bought as a rider—on a base policy like a life insurance policy—or as a standalone policy. But as a rider, the policy exists only till the time the base policy exists. Surrender the policy and you end up forgoing the benefits of a critical illness policy.

Unlike a health insurance policy, a critical illness policy requires minimal paperwork because the insurer concerns itself with the diagnosis of the ailment.

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What are FMPs?

noreply@blogger.com (India Stock Picks) — Mon, 26 Nov 2018 11:30:00 +0000

What are FMPs?

As Fixed maturity plans or FMPs are closed-end debt mutual fund schemes, they come with a specific tenure. So investors can invest only at the time of a new fund offering (NFO). Similarly, you cannot withdraw before maturity, but you can sell such schemes on the stock exchange. The corpus of FMPs is invested in fixed-income securities that mature just before the scheme itself. For example, if the FMP is for three years, the fund manager will invest in instruments with a maturity of three years or less. This helps FMPs to protect against interest rate risk.

In the current interest rate regime, FMPs offer a good investment opportunity as investors can lock in their money at attractive yield

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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L&T India Value Fund

noreply@blogger.com (India Stock Picks) — Mon, 26 Nov 2018 04:14:00 +0000

Investors are increasing finding it difficult to pick up quality stocks because of their high valuations. In such a situation, it makes sense to be with mutual fund schemes that follow value theme and have high focus on large-sized companies. One such scheme is L&T India Value Fund.

The scheme invests 40-55% of its portfolio in large-sized companies, 35-40% in mid-sized companies and rest in small-sized companies. In comparison with its peers, the scheme has higher exposure to large-sized companies. Due to this, the scheme has performed well even in weak markets. In the past three- and fiveyear periods, the scheme has generated returns of 16.4% and 26%, respectively. During the same period, its category of schemes have given 12% and 19%, respectively.

In the past six months, the scheme's fund managers Venugopal Manghat and Karan Desai have invested in diversified themes by selecting companies which not only have lean balance sheet, but are also placed well in terms of earnings' growth in the coming quarters. A few prominent names are Bharat Electronics, KNR Constructions and Sun TV Networks.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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How to Exit out Insurance Policy

noreply@blogger.com (India Stock Picks) — Fri, 23 Nov 2018 03:11:00 +0000

Why go for term plan-MF combo
The term plan-mutual funds combination is financially the most efficient. Ulips levy a number of other charges besides the fund management charge (that a mutual fund also charges) and mortality charge (that a term plan charges). They levy a premium allocation charge (PAC), an administrative charge, and so on. The cost structure of Ulips is also complicated. While charges levied under endowment plans and money back policies are unknown, charges under linked policies are clearly mentioned in policy brochures and policy document available on company website. Investors are either unaware or they do not take pain to go through the policy details before making a final purchase. Insurance companies, agents and advisors take advantage of the ignorance of investors and sell policies which are not really helpful.

Therefore, in the first place, the mutual fund-term plan combination scores by having a lower and more transparent cost structure.

Another problem with Ulips is that an insurance company offers only a limited number of fund options. If the funds offered by the insurance company underperforms, the investor does not have the option to exit his current fund and invest in a high-return fund from another company (until the lock-in period is over). On the other hand, if he invests in mutual funds, he can easily exit his current underperforming fund (most mutual funds do not have an exit load after one year), and choose to invest in any one of the hundreds of funds available in the market.

Traditional products such as endowment plans and moneyback plans too have drawbacks. The biggest is that they offer simple interest, whereas if you invest in a mutual fund or even in a PPF, your investments grow through compounding. As we well know, the effect of compounding is powerful, especially over the long term. The second disadvantage of traditional products is that they have a high allocation to debt products. This, too, affects their returns: over the long term, as we know, returns from equities trounce those from debt.

Another disadvantage of insurance-cum-investment products belonging to insurance companies is that despite paying a hefty sum of money as premium, the family could still be under-insured. Since term plans are inexpensive, one can buy adequate amount of cover through them.

What should you do
Exit and bear the losses upfront: If a person has invested in a Ulip or in traditional products, and especially if he has paid the premium only for two or three years, the ideal solution would be for him to exit these policies right away. In the older Ulips, there was a lock-in period of three years, which has now been extended to five in the new Ulips. If an investor exits from an old Ulip after paying two premiums, he will lose out on his premiums completely. If he exits an old Ulip after three years, all he is likely to get is the third-year premium; the myriad charges in Ulips would eat up the rest. According to Pune-based financial planner Veer Sardesai, 'Over a 20 to 25 year span the investor is better off exiting these policies, even if it means entirely forfeiting his premium, and going with the term plan-mutual funds combination.' However, only investors who are financially savvy would perhaps agree to pursue this course of action.

Stay put: At the other end of the spectrum, you would have investors who are not at all financially savvy. They would have little knowledge of term plans (because agents do not push them) and mutual funds (especially in smaller towns, there tends to be greater awareness about insurance products than about mutual funds). Such investors would be wary of these options.

These investors would prefer being in a Ulip rather than in a term plan-mutual fund combination because a Ulip, being a product from an insurance company, would offer them a greater sense of security (especially if it is from the public-sector behemoth). Such investors could stay put in the Ulip. Even if the Ulip is not a financially-efficient product, it would still benefit these investors by offering them equity exposure, which would boost their returns over the long term.

The middle path: Next, you have investors who are financially savvy and who understand the logic behind promptly exiting a Ulip or a traditional product. Despite this, they might shy away from the option of writing off their premiums in the Ulip entirely. Very often the premiums they have paid are as high as Rs1 lakh or more per year, so bearing the loss upfront becomes difficult.

For such investors, Sardesai suggests the middle path of making the policy 'paid up'. Enquire from the insurance company the minimum period for which premiums must be paid. Pay till then and then stop. Thereafter, the policy will continue to exist. The insurance company will deduct its annual charges from the corpus that has accumulated within the policy and keep it alive. The paid-up policy would offer a lower sum assured, but the investor would at least be saved from throwing good money after bad. The advantage of this course of action is that the investor feels he has not lost his money entirely, though if one were to do the mathematical calculations, the first rather than this third option would be optimal.

As you can see, once you have entered these high-cost insurance-cum-investment policies, there can be no painless exit. Taking your losses upfront, especially if you have not been in these policies for long, would be the best course of action if you are keen to get your financial portfolio back on track.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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Impact of rising interest rates on Debt Mutual Fund Investors

noreply@blogger.com (India Stock Picks) — Thu, 22 Nov 2018 11:50:00 +0000

Rising rates is bad news for debt fund investors. When the interest rate starts to move up, the price of existing bonds falls which in turn pushes down the net asset value (NAV) of debt funds, translating into lower returns for the investor. As far as debt mutual funds holders are concerned, the impact of rising interest rates is more on the schemes that hold long-term securities compared to those holding bonds which are maturing early.

What to do: While investing in any of the 16 debt fund categories as classified by Sebi recently, look at the ones with a shorter maturity profile. Investors should be allocating to ultra-short term funds and corporate credit funds. These funds are likely to deliver the best returns in the current rate environment and can substantially protect investors from a rise in interest rates

Debt funds with underlying securities with longer holding period may be avoided. Avoid long-term bond funds as they depreciate in a rising interest rate scenario resulting in a potential capital loss

This is what debt fund investors with moderate risk appetite and those who are risk-averse should do:

* Risk-averse investors should consider investing in liquid funds, arbitrage funds, ultra-short term funds and fixed maturity plans at this point based on the current market conditions.

* Investors who can withstand some amount of risk and with a medium-term investment horizon should consider investing in high quality fixed-income funds with duration range between 1 year and 3 years via systematic investment plans (SIPs). They should spread their investments over 3 to 4 instalments for six months or so. This may help the investor take advantage of the upward trend in bond yields and help mitigate downside risks.

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Single or Multi trip Travel Insurance Policy

noreply@blogger.com (India Stock Picks) — Thu, 22 Nov 2018 07:39:00 +0000

Indians love travelling. The thought of exploring new places, learning new cultures and tasting local cuisines is both exciting and enthralling. But in that excitement, many of us generally forget to secure oneself from any unexpected events one can face during their travel. These can range from loss of baggage, flight cancellation, accidents, etc. Conclusion: One needs to have a forceful travel insurance policy in place before they board their flight, regardless the kind of trip they are taking.

So, the next steps involve doing a thorough research on the various policies available in the market vis-à-vis one that meets your requirements to the closest. Broadly, there are two types of travel insurance policy available in the market for travellers travelling abroad: single and multi-trip travel insurance policy. But first let's understand the basic difference between the two:

Single trip travel insurance

As the name suggests a single trip travel insurance policy provides coverage for one domestic or international trip. Even if one is on a single trip, they can visit multiple destinations or multiple countries, and that is still considered a single trip while you are away from your home. The policy will last until one returns home from the trip.

The policy cover starts from the time one flies from the home country to the foreign destination and remains in force till the date of the return/ end of policy (whichever is earlier). The insurance policy comes with an extendable facility and quick claim resolving option. Single trip insurance can be bought as soon as one plans to leave. Such policies generally cover hospitalisation expenses, emergency dental treatment costs, loss of checked-in luggage, among others.

Those who travel occasionally and for a long duration, single trip travel insurance is an appropriate choice. It is also cost-effective as one needs to pay only for the exact length of the trip.

All insurance companies have a cap on the number of days that are to be counted as a single trip. Normally, a single trip plan provides cover for a period of around 180 days.

Multi-trip travel insurance

Multi-trip travel insurance plans are generally purchased on an annual basis. The policy term, which will be in force for a period of 12 months, begins from the date on which it is bought. All trips one makes during the year will be covered under the same policy. Multi-trip travel insurance policies generally cover loss of passport, emergency medical expenses, trip cancellation among others.

The cover is basically set for 365 days, wherein a person can fly abroad as many times as he wants under the same insurance policy. If one goes on multiple official trips in a year or believes in exploring the world, then this is the best option for you. That said, some multi-trip plans do have a limit on the duration of travel which may vary from 30-70 days per trip. Hence, reading the fine print is always advisable.

To be eligible for a multi-trip travel insurance one should hold a domestic health insurance policy in the country of their origin.

The differentiator

Single trip insurance policies are designed for people who only take one or two holidays a year, whether that is a short trip to Singapore or a three-week jaunt in Europe. Multi-trip policies, on the other hand, are for those lucky enough to enjoy more than two journeys a year. These policies are often better value for money than buying single trip cover for each separate holiday. Multi-trip policies allows one to make unlimited journeys in a year. Moreover, most policies will limit the length of each trip (usually between 31 and 45 days), but double-check for any restrictions before you buy.

Things to keep in mind

Whatever policy one decides to opt for, there are certain things one must cross-check. Key ones being destination, duration of stay, possible medical expenses, (including sports/activity-related injuries in case your focus is thrill or adventure travel), the cash and valuables you will be carrying, trip cancellations in case of multi-trips and policy limits and exclusions.

Destination is crucial as most insurance companies have separate cover for Europe and the rest of the world. Some worldwide policies even exclude the US, Canada and the Caribbean. The level of cover and feature varies from country-to-country and plan-to-plan.

Though every policy offers basic medical cover for unexpected or new injuries and illnesses, one must ensure that they are covered for all medical emergencies. All existing medical conditions must be declared before the purchase of the policy, otherwise there are chances of denial.

The cancellation cover must be enough to encompass the pre-paid cost of the trip(s). The cost of emergency items of clothing should also be accounted for in case the luggage is misplaced and damaged by the airline.

In nutshell

Both plans have different uses and advantages. The choosing criteria is solely based on one's requirements and policy options. A single or multi-trip travel insurance policy makes your journey worthwhile and provides you complete peace of mind in a foreign territory.

For more information on Top SIP Mutual Funds contact Save Tax Get Rich on 94 8300 8300

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