Prudent Financial Management

2011-11-01T23:41:00.000-07:00

Frequently Asked Questions about Public Provident Funds for Non-Resident Indians

Public Provident Funds are a favorite investment avenue in India, thanks to the tax-free, risk-free interest rate of 8% per annum. But for NRIs seeking to put some money in this avenue, the news ain't so good. Firstly as an NRI you cannot open a new PPF account. Secondly, if you live in a country like the US or UK, you will have to pay tax there on your PPF earnings and withdrawals. Let's dive deeper.

Can an NRI open a new PPF account?

No, a Non Resident Indian (NRI) cannot open a new PPF account in India. Prior to 2003, NRIs were not even allowed to make contributions into existing PPF accounts, that is, accounts opened before they became NRIs. However, in 2003, a notification (MOF (DEA) No GSR 585 (E) dated 25.7.2003) was issued permitting NRIs to continue investing in existing PPF accounts till maturity. An NRI can now invest up to Rs 70,000 per financial year in an existing account, that is, an account that he opened prior to becoming an NRI.

If you inadvertently opened an account after becoming an NRI, it is best to close it before it comes to the attention of the concerned authorities in India.

From which account can an NRI invest in the PPF account?

An NRI can use funds in the NRE account or the NRO account to make investments in the PPF account. It is important to remember that the PPF rules require you to invest at least Rs 500 per financial year in the PPF account. Says Sandeep Shanbhag, Director of Wonderland Investments and an expert in NRI financial matters, "If you fail to make the minimum investment in a year or years your account will be considered dormant. Subsequently, when you want to revive the account, you would need to invest Rs 500 for each year that you missed plus pay up a penalty of Rs 50."

What happens on maturity?

If you are an NRI at the time the deposit matures, you would need to withdraw the balance. An NRI is not eligible for extension on the PPF account. What happens if you leave the account unattended past the maturity date? "In such cases the account will be considered 'extended without contribution' in blocks of 5 years for an unlimited period of time. Extended without contribution means that the NRI will not have to make the minimum yearly investment of Rs 500. His account will continue to earn interest at the prevailing rate," says Shanbhag adding, "We hear of instances where banks allow NRIs to extend the PPF account only for 2 blocks of 5 years or 3 blocks of 5 years. But according to the rule book the extension can be made for an unlimited period of time."

Can PPF withdrawals be repatriated?

When NRIs were permitted to continue investing in existing PPF accounts in 2003, the permission was on non-repatriable basis, that is, NRIs could not remit proceeds of PPF withdrawal out of the country. Subsequently the RBI announced a Liberalized remittance scheme in 2004 according to which NRIs could remit up to USD 1 million per financial year from the NRO account. Therefore, as of today, you can credit the withdrawal proceeds of your PPF account into the NRO account. And balance in the NRO account can be repatriated abroad up to a limit of USD 1 million per financial year. Of course, you would need to follow certain procedure for such repatriation.

Read: How to remit NRO account funds abroad
What taxes are applicable on PPF interest?

There are two stages at which there will be a tax implication; one in India and the other in the country of NRIs residence.

In India

In India, PPF is one of the investments available for deduction under section 80C. That is, if you have income in India (from say rental property), then you can reduce your tax payout in India by investing in the PPF. The interest income as well as principle withdrawals are tax free in India.

In the country of residence

You would need to look at the tax rules that apply in the country of your residence. In countries like the US, the interest earned on the PPF will be taxable. Rajesh Vaidya a CPA and Senior Accountant at Florida based Raju Maniar CPA firm explains, "PPF does not qualify as a retirement account under the US tax laws and therefore the interest will be taxable in the US. Now, the question is whether you should pay tax every year on the accrued interest or on the entire interest at the time of withdrawal. While there is no rule on this, a taxpayer can take a view depending on what is beneficial to him. For instance, if you expect to be in the high tax bracket when you withdraw, then you might pay higher tax at that time. In such case you might want to pay tax every year on accrued interest. But whatever method you choose, ensure that it is followed consistently."

To sum up

Having seen the basics of investing in PPFs, we look at the key question: Should NRIs invest in the PPF?

Says Shanbhag, "PPF is an attractive investment from the returns point of view - 8% tax free. If you have income in India, PPF will also give you a tax deduction under section 80 C. However, you cannot invest too much in this account. The limit for maximum investment is just Rs 70,000 or USD 1400 per annum. Secondly, like all investments that NRIs make in India, the PPF is also subject to currency risk. If the rupee falls significantly at the time of maturity of your account, your interest rate gains may be wiped out."

If the price of gold falls below USD 1,600

2011-08-29T21:37:00.001-07:00

If the price of gold falls below USD 1,600 an ounce, it could go down by nearly 30% from peak and the dollar could strengthen by a similar percentage, Ron William, a technical strategist at MIG Bank, told CNBC on Monday.

Gold fell by more than 1% Monday, reversing a rise of over 3% in Friday`s session, but is still trading above USD 1,800.

Last week, gold prices plunged on better-than-expected data on the US economy and widespread fears that the precious metal was overbought.

"The key level to keep in mind is USD 1,600 on the downside, which would confirm a much larger decline," William said.

Record Prices Spawn New Wave of China Gold Bugs
Gold Inches Up After 2% Fall; Equities Limit Gains
SPDR Gold ETF Becomes the Largest ETF in the World

A chart looking back to the price of gold since 1999 shows key cycle turning points for gold every year, he added.

"Of course we are in that risk zone at the moment and we have been for some time, going into September as well," William added.

The corrections of 1999, 2006 and 2008 saw the price dropping by around 28%. "This is something to keep in mind as kind of a potential risk scenario for gold if it were to break below USD 1,600," he said.

Large speculator positions in gold hit their peak one year ago and gold`s potential decline, coupled with a retreat from risk appetite across the world, could send the US dollar soaring, according to Williams.

"In my opinion, the US dollar will be the surprise market that actually appreciates in value up to 30% over the next six months to 12 months," he said.

The dollar slipped against major currencies on Monday, with investors speculating that Federal Reserve Chairman Ben Bernanke will resort to more monetary easing despite a rise in core inflation.

Copyright 2011 cnbc.com

Real Estate prices in mumbai - oct 2010

2010-10-06T03:11:00.001-07:00

A house in Mumbai? Do you make 40 lakh a year? - The Economic Times: "- Sent using Google Toolbar"

2010-09-30T01:09:00.000-07:00

What Market Promises:-

“In trading, the vast market consists of amateurs who are looking for magical answers to make lots of money quickly and with little risk. They want specific ideas. They want to be told exactly what to do. Those looking for such things will not find them. They will not be successful as long as they continue to favor the easy over the truth.” ~~Curtis Faith ~~

Let us see what is the TRUTH…….

Market Promises:-

1. It promises a playing field, not the game.

2. It promises to reward risk, not proportionately.

3. It promises opportunity, it does not promise profits.

4. It promises a lesson, not learning.

5. It promises that the quality of indicators and analysis is proportionate to quantity of participants, not quality.

This is not going to endure me to my readers but I think it is important that we all are reminded what the market promises us.

What You Should Do?

1. Know The Game:- Investing is the most difficult of games: nowhere else does one begin a career by opposing the world’s most accomplished professionals. So, you need to master the rules of investing.

2. Understand The Risk:- RISK is the possibility of loss. That is, if we own some stock, and there is a possibility of a price decline, we are at risk. The stock is not the risk, nor is the loss the risk. The possibility of loss is the risk. As long as we own the stock, we are at risk. The only way to control the risk is to buy or sell stock. In the matter of owning stocks, and aiming for profit, risk is fundamentally unavoidable and the best we can do is to manage the risk

.

3. Explore the Opportunity:- Success is the point at which talent and skill meet opportunity. So, explore all the opportunity. Realize that not to invest is also an investment decision.

4. Make Learning A Habit:- Analyze your trades past 3 to 5 years, it will give you base for your learning. Ask yourself, Why did you do particular trade? Was it based on logic, facts or tips? If you continue to do what you have done in past 5 years, where will you be in next 5 years?

5. Follow the indicators:- The market tells the truth, but often there is a lie buried in the human interpretations. Surrender to the truth and not to your opinions.

How To Deal With Greed And Fear?

Once again I take help from Lord Krishna. Do your best and leave rest to the Market. Market is the only authority to give you results for your work. So follow the truth, reward will come automatically.

Happy Investing,

some sensex milestones

2010-09-27T03:08:00.000-07:00

Jan 1, 1986 (549): BSE Sensex launched
Apr 26, 1992 (2,550): Harshad Mehta scam uncovered
Jan 1, 1993(2,652): FIIs enter India
Jan 3, 2000 (5,642): Dotcom boom goes bust
Mar 30, 2001(3,604): Ketan Parekh arrested
Jan 1, 2002 (3,246): Rolling settlement for all stocks
May 17, 2004 (4,505): UPA-I comes to power
Sep 14, 2008 (13,531): Lehman Brothers collapses
May 18, 2009 (14,284):Congress returns to power
Sep 21, 2010 (20,001)

Indices :SENSEX
Period : ( Year 1991 to Year 2010 ) Click here to download.

Year Open High Low Close Price/Earnings Price/Bookvalue Dividend Yield
1991 1,027.38 1,955.29 947.14 1,908.85 22.30 3.58 1.24
1992 1,957.33 4,546.58 1,945.48 2,615.37 36.19 6.35 0.80
1993 2,617.78 3,459.07 1,980.06 3,346.06 31.78 4.81 0.98
1994 3,436.87 4,643.31 3,405.88 3,926.90 45.45 6.07 0.68
1995 3,910.16 3,943.66 2,891.45 3,110.49 23.63 3.81 1.13
1996 3,114.08 4,131.22 2,713.12 3,085.20 16.07 3.02 1.50
1997 3,096.65 4,605.41 3,096.65 3,658.98 14.45 2.80 1.53
1998 3,658.34 4,322.00 2,741.22 3,055.41 13.00 2.25 1.80
1999 3,064.95 5,150.99 3,042.25 5,005.82 17.35 3.07 1.38
2000 5,209.54 6,150.69 3,491.55 3,972.12 24.48 3.81 1.14
2001 3,990.65 4,462.11 2,594.87 3,262.33 17.60 2.51 1.83
2002 3,262.01 3,758.27 2,828.48 3,377.28 15.22 2.30 2.14
2003 3,383.85 5,920.76 2,904.44 5,838.96 15.02 2.49 2.14
2004 5,872.48 6,617.15 4,227.50 6,602.69 17.26 3.28 2.01
2005 6,626.49 9,442.98 6,069.33 9,397.93 16.21 3.94 1.58
2006 9,422.49 14,035.30 8,799.01 13,786.91 20.18 4.75 1.35
2007 13,827.77 20,498.11 12,316.10 20,286.99 22.25 5.32 1.10
2008 20,325.27 21,206.77 7,697.39 9,647.31 18.22 4.20 1.29
2009 9,720.55 17,530.94 8,047.17 17,464.81 18.08 3.42 1.43
2010 17,473.45 20,105.54 15,651.99 20,045.18 21.12 3.64 1.14 (till sep 27)

Real Estate - Australia and India

2010-09-15T05:19:00.000-07:00

- australia is a conundrum. their real estate correction can not precede a chinese downturn in my view. bhp billiton and other miners who mainly export to china/asia have recorded multi billion dollar profit. bhp is buying out canadian co potash for c. USD40 billion. aussie economy is based on mining. i think we are far from a correction. aussie mouse is riding the chinese dragon..dangerous at some stage. many experts have started questioning the chinese growth...let's see..timing is key.

- kalpataru/ashok tower at parel now quoting rs 30,000 a foot or slightly below. my friend's 2,000 sft flat leased out at rs 17 lakh (140k pm) pa ie a yield of 3%, similar to sydney! earlier mumbai yields were 5% for residential. everything is booming. it took me 15 minutes to walk out of andheri station after getting off the train at platfrom no 7 or 8 or 9(!). walked in a sea of humanity - thousands of people walking in and out of station with tiredness, patience and enthusiasm at 7pm. the potential human energy is unbelivable - in my view much larger than the heat of all the oil in saudi arabia. just imagine if these people's energy is channelised properly, they could overturn an empire! i won't be surprised with a 10% GDP next 10 years. also spent 2 hours with ceo and directors at a leading investment bank. they are doing great business and are upbeat. couldn't see a person who is complaining about money - whether beggars, housemaids, executives. now in that case why should real estate be any cheaper in mumbai?

Gold rates

2010-09-15T02:13:00.000-07:00

i have a very simplistic view about gold.
its price reflects purchasing power of USD (actually a combination of major currencies). when their purchasing power reduces, gold goes up.

i think the major world power would like their currencies to be supreme so they tried to downplay gold as a benchmark. and succeeded to a great extent in late eighties when gold was down to 250$ an ounce. All the Major powers sold their gold reserve (except china , i think) during those period which was major cause of those low levels. however in the near future all major powers are going to be too busy to defend their currencies and may not be in position to sell their gold reserve again.
in which case a crash inthe Gold prices like the late eighties may be quite unlikely in near future.

once we can rule out such crash, investing in gold (and other commodities) may be a good hedge against inflation.

i feel 10 to 15% investment in precious metals should be there. especially when we expect high inflation.
while real estate is good (or better since it can yield rent) it is quite illiquid and hence gold needs to be part of portfolio .