FINVESTguru: We Care Your Money

Complete Information about Income Tax for AY 2010-11

noreply@blogger.com (FINVESTguru) — Thu, 04 Feb 2010 18:08:00 +0000

Q1. How do I save tax?

You can reduce your tax liability by taking advantage of the various tax deductions.Under Section 80C of the Income tax Act, 1961 you can reduce your total taxable income by up to Rupees One lakh by making specified investments. There are other sections of the Act as well like 80 D, 80 E, and Section 24 under which you can reduce your total taxable income

Q2. What are the income tax slabs for the current financial year 2009-10 (assessment year 2010-2011)

Tax rate for Individual are revised as under:

Income Range	Individual	Woman	Senior Citizen
Upto Rs. 160,000	Nil	Nil	Nil
Rs. 160,001 to Rs. 190,000	10%	Nil	Nil
Rs. 190,001 to Rs. 240,000	10%	10%	Nil
Rs. 240,001 to Rs.300,000	10%	10%	10%
Rs. 300,001 to Rs. 500,000	20%	20%	20%
Above Rs. 500,000	30%	30%	30%

Previously existing surcharge of 10% on individuals has been abolished. Education Cess @ 3% remains unchanged.

What are the various categories of deduction?

Currently Income tax Act, 1961 provides for following deductions to reduce the tax liability

Deduction under Section 80C - Various Investments options like Insurance ,PPF , ELSS etc.
Deductions under Section 80D – Medical insurance premium
Deductions under Section 80E – Interest on Education loan
Deductions under Section 80 G - Donation
Deductions under Section 24 - Interest on loan for purchase of house property

How do I calculate my tax liability

You can calculate your Net taxable income by reducing the various deductions available under sections 80C to 80U and Section 24 (few examples were given in Question No-3) from your gross total income. (Gross total income is calculated by adding income under five heads –income from salary, house property, capital gains, business and profession & other sources.).You can then use the tax slabs applicable in your case to calculate tax liability for the year

What facts should I consider while making my tax saving decision?

A. The decision to invest should be made keeping in view security, long term goals, liquidity and returns (After-tax) like any other investments.

Tax related sections that you should know

Section 80C: According to Section80 C, the investment (up to a particular limit) that you make in certain instruments like life insurance, Public provident fund etc. or an expense like payment of tuition fees that you incur, reduces your Gross total income by that amount. The maximum amount that you can claim under this section is Rs 1 Lac.
Section 80CCC: The premium that you pay towards pension plans qualifies for tax benefits under Section 80CCC. The maximum amount that you can invest under this section is Rs 1 Lac. Note that the combined investment u/s 80C and 80CCC cannot exceed Rs 1 Lac.
Section 80D: The premium that you pay towards health insurance for yourself and family (Spouse & dependent children) qualifies for tax benefit under Section 80D. The amount that you can claim under this section is 15,000. Additionally you can claim Rs. 15,000 for premium paid for parents health insurance. In case of senior citizen the limit is enhanced to Rs. 20,000. Hence the maximum amount that you can claim is Rs. 35,000.
Section 24: Repayment of Interest in home loan up to Rs. 1.5 lacs is tax deductible if the property is self occupied. If the property is rented out, there is no cap on the interest portion that you can claim for deduction i.e. the entire interest portion can be reduced from your taxable income
Section 80E: Section 80 E The interest on loans taken for higher education (any course after passing SSC) qualifies for tax benefits. The loan taken for spouse or childrenâ€™s education also qualifies for the same. Do remember that there is no ceiling to the interest portion for the loan but unlike home-loan, principal repayment gets no tax advantage. Up to FY 2008-09 scopes of higher educations was restricted to full times studies for graduation or post graduation course in select fields.
Section 80DD: A fixed total of Rs. 50,000 qualifies as deduction irrespective of amount incurred towards expenditure / investment for the medical treatment of handicapped dependant, certified by medical authority. In case the disability is severe deduction is Rs 75,000. In this years budget the limit for severe disability is proposed to be increased to Rs.1, 00,000 from the current Rs.75,000.
Section 80DDB: Deduction upto Rs. 40,000 (for Senior citizen Rs. 60,000) is allowed for medical treatment of specified diseases certified by Government hospital
Section 80G: A part (50%) or entire donation made to specific Trusts / charities / funds is eligible for deduction under this section. The maximum amount that can be claimed under this section is 10 % of (gross total income (claim under various other sections)).
Section80CCD: The deduction for contributions to a pension scheme of the Central Government is available only to those individual who have been employed by the central government on or after 1st January 2004, and will be allowed for any amount deposited in such a pension scheme. But, in this case, deduction of more than 10 per cent of the employee's salary shall not be allowed. This deduction was hitherto available for only employees of Government and Other non government organizations. Now self employed assesses can also claim this deduction. If the assessee uses the amount received from the Trust to purchase an annuity during the same previous year, then such receipt would not be taxable in the hands of the assessee.
Section80U: It is deduction in the case of a person with a disability. An individual who is suffering from a permanent disability or mental retardation as specified in the persons with disabilities (Equal Opportunities, Protection of Rights and Full Participation) Act, 1995 or the National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities Act, 1999, shall be allowed a deduction of Rs 50,000. In case of severe disability it is Rs. 75,000.

Insurance has traditionally been one of the preferred investment options for investors seeking to reduce their tax burden but there are many benefits of insurance that people are not aware of.

Health insurance joins the party Sec 80C has always been the more popular and glamorous tax savings section. People know how much they can save and what kind of investments come under the ambit of Sec 80C. But, last years budgetary provisions brought the limelight on a so-far lesser known tax provision which is Sec 80D. Sec 80D covers premium paid towards health insurance plans. This years budget increased the cap of investments under Sec 80D by Rs 15,000. This covers premium paid towards medical insurance taken on the health of self, spouse and dependent children (max Rs 15,000) and on the health of parents (max Rs 20,000 in the case of parents being senior citizens or Rs15, 000 otherwise).

So, now when you combine Sec 80C and 80D, you find that you can invest up to Rs 1.35 Lacs which for someone in the highest tax slab converts to an additional savings of almost Rs.5, 099 .
Tax treatment Tax treatment at the time of maturity Tax treatment at the time of maturity when people are taking a decision related to their tax savings investments, they look for tax savings only at the time of investment. But in doing so, they only see the incomplete picture as they do not look at the tax treatment at the time of the maturity of their investments.

So, in the worst case they end up investing in a plan which does give them tax savings at the time of investment but at the time of maturity, the maturity proceeds get taxed.

For e.g. - if a person invests Rs. 100 in a plan in which the maturity amount gets taxed, he saves Rs. 33 u/s 80C. Let us assume that after a year, this investment matures and the investment value is Rs. 300 (Growth Rs. 200). If this growth were to be taxed on maturity, he will end up paying Rs 66 as tax. So, the net gain for the investor is much lower.

Regular premium life Insurance is one of the few tax savings investment options which give you the benefit of tax-free maturity. So, not only do you save tax on your premium payments but you also enjoy tax free maturity benefits.

Now, that is having the cake and eating it too

Some FAQ's

Q 1. I have withdrawn the Provident Fund & got the amount credited to my bank account, Whether is their any need of showing as income from other sources & make the Tax payment

No, amount withdrawn from PPF a/c is exempt from tax

Q 2. For the year April 2008 to march 2009 what is that last date for filing returns for an individual 2.As seen in the quiz if it is July 31 2009 for the above query is the investment after March 2009 counted for tax exemption benefit.

The last date for filing a tax return for 2008-09 would be 31st July 2009. You can file a belated return for that year by 31st March 2011. If the tax return is filed after 31st March 2010, there would be a penalty for late filing of Rs. 5,000. If the return is filed after 31st July 2009, and there is a tax payable there will be an interest payable under section 234A. Further any losses incurred during the year such as a capital loss will be not carried forward unless the return is filed in time i.e. by 31st July 2009. .2) No, Only investments made till 31st March 2009 can be considered for F Y 2008-09.

Q 3. I was working on Rs.40, 000 per month now I have joined a teaching course so I am getting Rs. 11,000 per month so kindly guide me for tax filing.

The income that you receive from the teaching course would be taxable. If you continue the job and this is merely part time then it may be treated as income from other sources. If this is now your only vocation then it will be taxed as business income. In either case any expenses which re specifically incurred to earn this income can be claimed as a deduction including books, conveyance and whatever else. If your total taxable income for the year is more than Rs. 150,000 you would be obliged to file a tax return as well.

Q 4. If I am a proprietor and I donate some amount to a charitable institution, what should be the procedure to get deduction and how should I pay, whether in cash, cheque or kind.

To get a deduction, the trust or association to which you donate should be certified under section 80G - you must receive the receipt and an 80G certificate valid for the year in which the donation is given. Donation can be given by cheque r by cash withdrawn from your regular bank account. There are no tax benefits for donations in kind.

Q 5. I want to make a pan card but I don't have my high school mark sheet. sir I am 17 years old so I can make a pan card after that I will not face any problem

As your income is below taxable limits, it is not compulsory to file a tax return even if you have a PAN Card. However if excess tax ahs been deducted at source and you wish to claim such tax as a refund, you need to file the same. You can, nonetheless, file the tax

Q 6. I am a retired employee and my income (Pension) was below taxable limit. I did not submit income tax return since last 4 years. This year I have got arrear pension payment due to revision of pension. My income this year is above exemption limit and I will have to pay income tax. I am told that Income Tax office does not accept return if return is not filed in the previous year. How can I submit Return this year?

You can file your return even if you have not filed your return for 4 previous years. You may however have to make a declaration to the Tax Office that the reason for not filing a return earlier was that there was no taxable Income

Q 7. I plan to invest money in bank term deposits. It is usually mentioned that for interest amount earned upto INR 10'000/- there is no TDS. My question is that whether this limit is valid for just one branch of a bank (as advertised at many places) or one has to consider the total interest earned in all the banks/branches where term deposits are held by an individual. In other words if one sees the interest limit surpassing in one branch then s/he should open a term deposit in another branch to avoid TDS. Also, if the latter is true then while filing the Form 15G or H to any branch, whether one should certify the deposit details pertaining to that branch only or all the holdings in various branches. Regards.

As per the law, the TDS limit of Rs. 10,000 is applicable per branch. From a 15G/ 15H perspective however it is the total income which matters and not just income earned from FDs with a particular

HRA tax treatment:

Q 1. Please give me some guide line, how to get exemption from IT. I have a house loan from ICICI bank in Trivandrum for an amount of Rs. 5, 39,000/- Now I am working in Chennai and staying in a rented house. My family is staying in my house in Trivandrum what is the procedure for exemption from IT by claiming House loan repayment as well as House rent allowance paid. And I also have a Medical insurance from ICICI Prudential for me and my wife. Expecting a clear replay from your side

The house in Trivandrum will be treated as a Self Occupied Property. You can claim a deduction for interest paid on the loan taken for the purchase of that house. Assuming that the loan as taken after 1.4.1999, you can claim a deduction if interest payable of upto 150,000 and this can be set off against your other income. A deduction under 80C can be claimed for repayment of the housing loan subject to the overall 80C limit of 100,000. A portion of the House Rent Allowance can also be claimed as exempt since you are living in a rental accommodation. A deduction for Medical Insurance will nonetheless be available to you under 80D

Q 2. I possess a Ground Floor Tenement in a society. Now I have constructed first floor on the same tenement. I have taken a housing loan from a bank. I want to know whether I will get tax benefit on principal and interest both or only one - as purchase of land is not involved and extension is on the existing tenement.

Yes, you can avail of the tax benefits available both for Interest and the principal amount of housing loan repaid

Q 3. I know that Rs 1, 50,000 can be shown as house loan interest per year. In my case I paid Rs 1, 50,000 as interest for my house loan and also around Rs 2, 50,000 as pre-EMI interest during the last 18 months. My query is can I show the house loan interest as Rs 4, 00,000 (i.e., 150000+250000)?

You can claim maximum interest amount of Rs. 150000. In case any interest pertains to the period prior to the acquisition of the property, such interest can be claimed in 5 equal installments starting with the year when the property is acquired but subject to the overall limit of 150,000 mentioned above.

Q 4. I am staying in government accommodation. Whether license fee should be exempted from income tax

Where accommodation is provided by Central Govt. or State Govt. License fee determined by them in respect of accommodation in accordance with the rules framed by such Govt. (less the rent actually paid by you) will taxable as a perquisite in your hands.

Q 5. Can a person can avail the income tax benefit on the second house. if the tax benefit is more on the 2nd property

Yes, you can consider any one of your property as self occupied and claim exemption for the same. In respect of the other property the ratable value of property will be deemed to be your income, if it ahs not actually been rented.

Q 6. If a person has two housing loans, one house is let out and tax filed accordingly, then, what is the total interest exemption eligible for tax rebate

You can claim upto Rs.150, 000 in respect of your Self occupied property and the total amount of interest paid without any limit on the house which has been let out

Q 7. Me and my wife have taken joint home loan .For agreement we have given stamp duty and registration fees. I want to ask whether we both can claim stamp duty and registration fees by dividing the amount instead of taking benefit singly. Please solve

Yes, Stamp duty and registration fees paid at the time of purchase can be equally divided & included in the cost of the property

Q 8. What tax benefit we get from home loan (principal and interest), under what section, is it included in 80c?

Repayment of principal amount of home loan is allowable as a deduction under 80C upto limit of Rs.100, 000 along with various other investments. In case where a loan is taken for acquisition of a property which is self occupied and not rented, Interest can be claimed upto Rs.150000 under sec.24 provided loan is taken after 31.3.99

Q 9. If the house is rented one, then what all benefits do we get, in respect of rented income, principal repayment and interest repayment and under what section?

If a house is rented , then entire amount paid towards interest on loan taken to acquire that house will be allowed as deduction from rental income. The Principal amount repaid Will be allowed as a deduction under 80 C upto limit of Rs.100, 000.

Q 10. I am staying in a house owned by my wife and son. Can I take a receipt from them for house rent and claim the exemption

If you actually pay rent to your wife and major son ( and not just take receipts), you may be able to claim some portion of the House Rent Allowance received by you as exempt. The rent received by your wife and major son will be taxable in their hands, though they will get a deduction of 30% against the rent so received. It is being assumed that your wife and son is owner of the house. In case your son is a minor, his property income from such rental will be clubbed with your income.

various tax saving instruments:

Q 1. My wife is 62 years old. I wonder whether investment can be made under ULIP in her name and claim 80C benefit from her total income. I guess the advantage is: 1. Reduced lock-in period of 3 years, against 5 years in back tax saver deposit. 2. Do the dividends after 3 years become eligible for tax free income? 3. She is contributing Rs.70, 000/- regularly in her PPF. Is there any limit of investment in ULIP scheme? Of course I understand that the maximum limit that can be claimed is limited to Rs.1 Lac.

Dividends will be tax free. The maximum deduction under 80C including PPF as well as ULIP would be 100000. So, if she so already contributing Rs.70, 000 to PPF, the additional tax benefit she can get under 80C from an investment in ULIP is only on Rs. 30,000. Subject to that, there is no limit on the amount that can be invested in a ULIP. Please note that with most investments there may be no limit on the amount you can invest although the tax exemption that you can avail of may be on only a part of the investment so made

Q 2. I have a ULIP for which I have not paid the last two annual premiums. The policy can be reactivated by paying the outstanding premium. I would like to know if the total premium paid to re-activate the policy can be used to claim tax deductions for this current fiscal.

Yes, any amount paid as premium for ULIP can be claimed as deduction but amount paid towards the reactivation charges or interest for late payment or any other penalty can not be claimed

Q 3. What is the amount that is exempted u/s 80c in case of life insurance premium? As per the act maximum limit is 20% of sum assured. Every one is telling that total amount is exempted irrespective of sum assured. Kindly clarify the position.

The maximum amount which can be claimed for insurance premium under 80C is 20% of the actual capital sum assured. This is specifically provided in section 80C

Q4. Are the partial withdrawals or the surrender amount of a ULIP policy taxable?

Partial withdrawals or the surrender amount of a ULIP policy are exempt u/s 10 provided contribution to ULIP is paid for 5 years. If however the policy is being discontinued before paying premium for 5 years then the amount claimed as a deduction under 80C in the past will be taxed in the year in which the policy is cancelled or surrendered

Q 5. Child insurance

You can claim an 80C deduction for the amount paid for the insurance of your children.

Q 6. My PPF a/c matured and I got Rs.8 lakhs. I invested the same as Term Deposits in a scheduled bank as Rs.4 and 3 lakhs each for 2 years with my wife as the first depositor and me as the second. My wife is a housewife and has no income or PAN card. Both of us are senior citizens. Pleas advise the would be tax liability on this.646420

Interest accrued on FD will be taxable in your hands even if the FD is in your wife's name as money has been transferred from your account. This happens due to what is known as 'clubbing' provisions where if assets are transferred to a spouse without consideration, the assets belong to the spouse but income thereon is included in the donor's tax account. As you are senior citizen your total taxable income upto Rs.225, 000 will be exempt from tax

Q 7. I have a sum of Rs 20 lacs which I have put in fixed deposit in 2 different FDs of 10 lacs each. The second FDs which is jointly in the name of my wife as No 1, I and my son. I want to gift this FD to my son as it is. What will be liability of the interest accrued? The FD is for 3 years

You can gift any amount to your son. If you are gifting the FD then it should be transferred in the name of your son and this may or may not be possible without breaking of the FD. The Interest accrued on the FD will be considered as your income till the date of gift and as his income thereafter. If your son is a minor his income will be clubbed into your income, though you will get a tax exemption of upto Rs. 1,500 against his income so clubbed

Q 8. If I have a savings in post office made in 2004 and close the account and transfer the amount in bank is the total amount received from post office be considered as income for current financial year?2) I have 25000/- deposited in ICICI Pru ,how much tax benefit I will get?3) if I sell a 10years old share will I have to pay tax on the sale value I have received

Only the interest received from Post office saving a/c will be taxable in the current year provided the same has not already been taxed in previous years on an accrual basis. 2) You will be able claim the Rs.25, 000 as deduction from your income under 80C. 3) If the shares are sold through the Stock Exchange and a Securities Transaction Tax (STT) is levied by the Stock Exchange thereon, the entire Gain will be exempt from tax

Q 9. I plan to invest money in bank term deposits. It is usually mentioned that for interest amount earned upto INR 10'000/- there is no TDS. My question is that whether this limit is valid for just one branch of a bank (as advertised at many places) or one has to consider the total interest earned in all the banks/branches where term deposits are held by an individual. In other words if one sees the interest limit surpassing in one branch then s/he should open a term deposit in another branch to avoid TDS. Also, if the latter is true then while filing the Form 15G or H to any branch, whether one should certify the deposit details pertaining to that branch only or all the holdings in various branches.

As per the law, the TDS limit of Rs. 10,000 is applicable per branch. From a 15G/ 15H perspective however it is the total income which matters and not just income earned from FDs with a particular

Q 10. Tax implication on surrender of policy

Surrender value of the policy is exempt from tax - unless it is a policy issued after 1.4.2003 and the premium paid in any year exceeds 20% of the total sum assured

Q 11. My wife is a housewife and I have taken her insurance policy, can I take benefit under section 80c

Yes, Insurance premium paid on life of spouse can be claimed under 80C.

Q 12. I have not withdrawn the amount from PPF, but only from the PF account(I am a salaried Class, working in pvt. Sector).I have left the job after two years of joining & now withdrawn. The PF amount from my PF account of Company. Now tell me the tax treatment for the same. Whether It will be liable to be included under income from other sources, or not

As you have withdrawn amount from your company's PF a/c within 5 years, Same will be taxable as income.

Q 13. I pay a premium of 85000/- to ICICI Pru and Rs. 15000/- (once in 2 years) to ICICI Lombard. Am I to understand that I can add Rs. 15000/- to my ICICI Pru premium and enjoy a deduction of Rs. 1, 15,000/- for AY09-10.

No. The maximum deduction that you can claim for A Y 09-10 under 80C will be Rs. 100,000 and not 115,000. A further deduction for any mediclaim paid will be available under 80D

Q 14. I have invested in Three Mutual Funds through SIP. These funds are ELSS. Now my Question is can I claim all invested amount under 80 deductions in my IT Return? Please guide me

Yes, you can claim the same under 80C

Q 15. I have withdrawn Provident Fund Amount from my account. (I was serving with the Pvt. Co for 2 years, now I left & changed the Company. I have received a PF amount in my bank account. As per my knowledge it is liable for Income tax, Pl. suggest better.

As you have withdrawn amount from your company's PF a/c within 5 years, same will be taxable as income

For the young and restless, equity rules!

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 18:14:00 +0000

We ask working professionals how they manage their money. As part of this series, we spoke to two young women and got wealth experts to evaluate their financial plan of action.

Is their money working hard, enough? Let's find out!

MANASI Deshmukh, 25, an HR professional with a BPO company in Mumbai, saves Rs 15,000 from her take-home, every month.

She invests this amount in 'safe' avenues such as National Savings Certificate (NSC), Public Provident Fund (PPF), infrastructure bonds and life insurance policies offered by the Life Insurance Corporation.
"I usually invest at the end of the (financial) year, when it's time to save tax," she confesses.

Maya Kumar, 27, another young turk from the IT sector, saves around Rs 17,000 per month. She predominantly invests in PPF. She also puts Rs 5,000 every month, in a bank recurring deposit. Maya's total investment works out to approximately Rs 150,000 (Rs 1.5 lakh) per annum. The rest, lies idle in her bank account.

Is your money wasting time in a bank?
Yes! Here's why. "Though the recurring deposit is a good saving habit, the interest you receive on it, may not be enough to cover inflation," says investment consultant Sandeep Shanbhag. Both Manasi and Maya should invest their money, aggressively, in equity.

"The only time you can take advantage of equity without sweating at the risk level, is when you have at least 10 to 15 years before you retire and no family responsibilities ," he adds.

Why equity rules
Both girls have parked a significantly large amount of money, in a savings account. According to investment advisor Ajay Bagga, Maya and Manasi's year-end planning strategy is more of a tax minimisation plan. Instead, they need to invest, keeping their long-term financial goals in mind.

"Sure, we need to keep some amount in the bank for daily expenses and emergencies. But we must invest the rest in short-term mutual fund schemes. These schemes offer higher returns. And you can sell them any time," advises Shanbhag.

Ajay recommends a portfolio of 90 per cent equity mutual funds and 10 per cent in fixed return products such as PPF, recurring deposits, bank deposits.

Save tax. But make money!
The investment favourites to save tax seem to be: NSC, PPF and LIC. But Equity Linked Saving Schemes (ELSS) are a better bet. Here's why.

The returns for NSC are 8 per cent, and this is taxable. Equity, on the other hand, yields anywhere between 15 to 18 per cent, when held over a long period of at least five to seven years. What's more, the returns are tax-free!

Infrastructure bonds are not such a good investment either, according to Ajay. "The returns have fallen to approximately 5 to 5.5 per cent. Earlier, the attraction was that they were tax-saving instruments," he says.

Section 80C now allows investors the freedom to choose any investment of their choice, up to Rs 100,000 (Rs 1 lakh) per annum. So, infrastructure bonds are no longer an attractive option, because they yield low returns, and the interest is taxable.

Do I really need insurance?
Ajay suggests that Manasi reevaluate her insurance coverage and see if she really has dependents whom she needs to cover. Did she buy the policy because her agent insisted? Or merely because she wanted to buy tax? Ideally, she must try switch to a low-cost term insurance policy, which is offered by all companies, but which agents usually do not sell, because the commissions on these are pretty low.

5 wealth rules for the young and restless!
If you are in your early 20s with no dependents and earn more than you need to spend on essentials, follow these five wealth rules.

1. Invest 90 per cent of your money in equity mutual funds.

2. Opt for a Systematic Investment Plan (SIP) plan to help you save, regularly. With SIP, the benefit is that you will have to keep aside a monthly amount.

3. Invest in short-term mutual fund schemes (less than three years). The returns you earn from these schemes are higher and you have the advantage of selling whenever you please.

4. Choose a low-cost term insurance policy, which is the cheapest form of insurance.

5. Choose ELSS investments; it helps in tax-saving.

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

Photograph courtesy Allen Solly
(Photograph used for illustrative purposes only)

Source: http://wealth.moneycontrol.com/features/financial-planning/for-the-young-and-restless-equity-rules-/272/0

Didn't file tax returns? Plan of action for late Latifs!

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 18:06:00 +0000

THE last date for filing your tax returns for the financial year 2008-2009 was July 31, 2009.

But even though the process got a tad simpler with the online option, some of you may have missed your deadline. But don't fret. You have a second chance.

If all your tax was deducted at source, you can file your returns by March 31, 2010, sans a penalty.

In other words, if your only source of income in 2007-08 was your salary and your company has deducted the tax at source, then you can file your tax returns by March 31, 2010.

And if you miss this date, you can still file your returns by March 31, 2011. However, be ready to shell out Rs 5,000 as penalty!

If you still have some tax to pay, file your returns by March 31, 2010. But you will be charged a penalty of 1 per cent for each month of delay.

That means that if say, you have income from rent or investments, ideally, you should have calculated your tax and paid it by 31 July 2009. But if you haven't, you can still do so by 29 March 2010 (with the 1 per cent penalty per month of delay).

For instance, if you have to pay Rs 4,000 in tax, and instead of paying it by July 31, you pay it on October 31, you would have to pay a penalty of 3 per cent (1 per cent for three months), that is Rs 120.

If you miss this date, too, file your returns by March 31, 2011. But you will need to shell out Rs 5,000 as penalty, over and above the 1 per cent!

But late filing of tax return is not a good option for everyone.

If you made a loss (in business or capital gains) and want to carry it forward to the next year, you must file your returns on time.

"You cannot carry forward the same to claim a set-off against future income if the tax return is not filed on time," advises tax expert Sandeep Shanbhag.

Source: http://wealth.moneycontrol.com/features/tax-planning/didnt-file-tax-returns-plan-of-action-for-late-latifs-/10031/0

I have NEVER saved tax

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 17:58:00 +0000

GADGETS, guitars, long weekends, music and his Maruti Swift are a few things technology critic Laiq Qureshi, spends most of his money on.

Laiq's mantra: Don't spend less, earn more. "I wouldn't want to cut down on comfort. It's just not me!" he exclaims.

The good life The 26-year old who works for an online media company in Mumbai earns Rs 25,000 per month. This amounts to approximately Rs 3 lakh (Rs 300,000) per annum.

Of this amount, more than half his salary goes to repay his five-year car loan from ICICI Bank. "They deduct about Rs 10,000 per month," he says. Laiq hopes to pay back the entire amount by 2010. Fuel expenses for weekend trips out of Mumbai eat up about Rs 6,000.

Laiq's girlfriend is based out of Bengaluru. So, STD calls and visiting her at least once a month, eats up the remaining part of his salary. "My cellphone bill is the only constant variable in my spending habit," he sighs.

If he has some money left over, he donates it to an NGO for children suffering from AIDS. "There was a time when money used to lay idle in my bank account," laments Laiq. Not any more.

Does he invest or save money ? No! Unfortunately, Laiq does not manage to save any tax, either.

Tax-wise

Though Laiq has been working for five years, he has NEVER saved tax. Why? He says he could simply never save enough money to invest. "But I have been thinking about it and once I enter the high income bracket I'll start saving," he says.

That's why Laiq has never bothered to fill out the investment declaration form handed out by his employers. "It totally goes above my head!" he exclaims. We do a quick calculation.

wealth experts recommend...

Taking into account his annual income, Laiq pays Rs 31,620, annually, ie on an average Rs 2,635 will be deducted from his salary every month for a period of 12 months.

To reduce this figure all Laiq has to do is fill out this form and show proof of this investment. He can invest up to Rs 1 lakh to save tax. The good news: the contribution that he makes to his company Provident Fund can be included in this amount. Laiq's PF works out to Rs 20,000 this year, due to which the tax deducted automatically reduces from Rs 31,620 to Rs 25,620.

He can invest up to Rs 80,000 more to save the remaining Rs 25,620. Depending on how much he actually manages to save, this is the amount of tax he can avoid paying:

If he invests this amount per annum...	Tax he pays	Tax he saves
Rs 80,000	Rs 9,080	Rs 16,540
Rs 24,000	Rs 20,280	Rs 5,340
Rs 12,000	Rs 22,680	Rs 2,940

Where Laiq can invest

It's pretty obvious that the more he invests, the more tax he saves. So, how much can he shell out?

"With my car loan and spending habits I don't think I can keep aside a large sum of money (read Rs 7,000-8,000 per month)," says Laiq.

The good news is that he can save tax with less money by:

-Breaking up his investments into installments and investing say Rs 1,000-2,000 per month.

-Read all about low budget investing here .

-Investing this money in a tax saver mutual fund or Public Provident Fund. While these are the preferred investments, he can also choose from other options like National Saving Certificates, five-year bank deposits, insurance policies and pension policies.

Laiq must get cracking on his investment plan right away, instead of waiting till January or February of next year. Or else his money could suffer the ills of 11th-hour tax planning!

Disclaimer: While efforts have been made to ensure the accuracy of the information provided in the content, the website or the author shall not be held responsible for any loss caused to any person whatsoever who accesses or uses or is supplied with the content (consisting of articles and information).

Source: http://wealth.moneycontrol.com/profile/tax-planning/i-have-never-saved-tax-/9291/0

Are taxes eating into your returns?!

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 17:49:00 +0000

The investment world is vast and complicated, and most people often fail to see, or choose to overlook the intricacies involved. The decision on where to invest is often arrived at arbitrarily; for example because a relative/friend/ colleague recommended it.

But investing is much more than that. Investing involves not only looking at returns but also understanding impact of other variables like inflation or taxation on returns. In this article, let us look closely at the impact of taxation on returns.

Public Provident Fund (PPF) versus bank fixed deposits FD

On the face of it PPF and FDs may look starkly similar.Both are low-risk options and offer moderate and more or less similar returns. PPF has a 15 Year term; FDs can have varied terms.

Now coming to the tax aspects. As far as deductions are concerned, both are available for deduction under secion 80C. However, an FD with a lock in of 5 years qualifies.

Coming to the returns. Returns on FDs are taxable, but the return on PPF is tax-free. So, lets say, if both these options gave a return of 8 per cent. The post tax returns on PPF would still be 8 per cent but on an FD it would be 5.6 per cent (assuming you are in the 30 per cent tax bracket).

NSCs, KVPs and Govt. of India Bonds

National Savings Certificate (NSC) and Kisan Vikas Patra (KVP) provide a returns of 8 per cent. However, the interest is taxable and if you are in the highest tax bracket of 30 per cent, your post tax returns come to 5.6 per cent.

So other things being equal, you should be looking at investing in options which offer higher post-tax returns or preferably options which give tax-free returns. And as far as possible avoid investments in options where the returns could get taxed substantially. Let us look at some such options.

Equity MFs and stocks

In the long term, equities are relatively less risky and the systematic investing route can definitely help reduce the downside. Also, equity mutual funds or direct equities become tax efficient only in the long term. If you sell your equity mutual fund or share holdings after holding them for over 1 year, you would not be liable to pay any tax. If you sell them before 1 year, your gains would attract a short term capital gain tax of 15 per cent plus cess.

Insurance versus Pension Plan

Pension plans have always been a favorite among investors, the word 'pension' acting as a psychological soother. The premiums are paid during a certain tenure and at vesting (retirement age), the payouts start. These payouts will however be taxed at normal rates.

There is an alternate to this. All payouts from any type of insurance plans; guaranteed, bonus linked or Unit linked are taxfree. So why not choose a whole life insurance plan with an option of year-on-year withdrawals. Such payouts are tax-free.

Debt Funds Vs. Bank Deposits

Liquid funds are appropriate for very short term deposits.

Avenue	Bank deposit	Liquid plus
Amt Invt.	Rs 1 lakh	Rs 1 lakh
Tenure	90 days	90 days
Return (%) per annum #	5.25%	6%
Maturity amount	Rs 101270	Rs 101447
Returns	Rs 1270	Rs 1447
Taxability of returns	30.9%	-
Dividend distribution tax	-	14.16%
Tax applicable	Rs 392	Rs 205
Post tax yield	Rs 877	Rs 1242
Post tax returns (%) per annum	3.61%	5.13%

#Average returns for Liquid Plus funds for Jun 09
Tax rates are inclusive of 3% cess

If you are looking at a slightly longer tenure (more than 1 year), you could look at Fixed Maturity plans (FMPs) which would prove to be an interesting and efficient option. With the help of FMPs investors can get 'double indexation' benefit. This advantage can be availed by investing in an FMP just prior to the end of a financial year and withdrawing it after the end of the next financial year. Here's a quick look at how one could benefit by investing in FMPs as against FDs.

A 13 Month FMP, launched on March 2007, will mature in April 2008. It will pass through two financial years and thus has the benefit of double-cost indexation for the purpose of calculating post-tax yield.

Details	Bank fixed deposit	FMP - with indexation	FMP - without indexation
Investment Rs	10000	10000	10000
Indicative yield (annualised)	9.5%	9.5%	9.5%
Tenure (mths)	13	13	13
Maturity amount Rs	11033	11033	11033
Return/capital gain Rs	1033	1033	1033
Indexed cost Rs	NA	11214	NIL
Indexed long term capital gain Rs	NA	-181	NA
Tax rate	30.3%	20.6%	10.3%
Tax Rs	313	NA	106
Post tax gain Rs	720	1033	927
Post tax annualised return	6.63%	9.5%	8.52%

Cost Inflation Index FY06-07 - 519; FY08-09 582

As is evident above, the post tax returns of FMPs with double indexation can be significantly higher (over 50% higher returns), even while pre tax returns are similar.

Gold

Holding physical gold is risky, however, often it is the usual last resort for someone who needs money urgently. Sale of Gold jewelry within a period of 36 mths, is treated as short term capital gains and taxed at normal rates. Post 3 Yr horizon, one needs to accommodate indexation benefit and would end up paying roughly about 10%-20% of taxes. There is a definite need to give a second thought on undue acquisition of gold. Investing in Gold via Mining funds (mutual funds) / exchange traded funds would be far more tax-efficient.

Real Estate

Here again, it would depend on the holding period. If you sell off the asset before 36 months, you would have to pay taxes at normal rates. For any period exceeding 36 months, if the asset is a residential property, you have the option of claiming exemption if it is re-invested. However, not only is the asset illiquid, earning a decent return on income could take an average of 10 yrs given that the market cycle is inherently longer.

The list of avenues is not exhaustive; we have touched on the key avenues. We leave you with the wishful thought to prioritize tax-efficient avenues for your investments.he list of savings / investment options presented here is not exhaustive; I have touched only on the more popular options and leave you with the thought that tax-efficiency is a key yardstick in evaluating investment options.

Summary

Invest don't save
Look at Post tax returns wherever relevant
Wherever possible choose tax free/lower tax instruments
Low risk tax free combo would fit Traditional insurance options and PPF/VPF. Gold/Debt Mutual funds/Real Estate are relative less taxed than fixed deposits
Medium/High Risk tax efficient avenues are Unit Linked Insurance Plans, Equity/Balanced Mutual Funds and direct equities
Interest bearing assets are generally tax inefficient. Hence look at post tax return before investing.

Disclaimer: While we have made efforts to ensure the accuracy of our content (consisting of articles and information), neither this website nor the author shall be held responsible for any losses/ incidents suffered by people accessing, using or is supplied with the content.

Source: http://wealth.moneycontrol.com/columns/tax-planning/are-taxes-eating-into-your-returns-/13672/0

Complete guide: Tax sops on donations

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 17:40:00 +0000

INSPITE of all the contributions made to social causes, there is a huge gap between the demand of money from the needy and the amount donated by philanthropists.

This probably, is the reason why the Government has given tax benefits on donations. The amount donated towards charity attracts deduction under section 80G of the Income Tax Act. Section 80G has been in the law book since financial year 1967-68 and it seems it's here to stay. Several deductions have been swept away but the tax sop for donations appears to have survived the axe. The main features of tax benefit with respect to charity are as follows:

Who can get a tax break?
Any person or 'assessee' who makes an eligible donation is be entitled to get tax deductions subject to conditions. This section does not restrict the deduction to individuals, companies or any specific category of taxpayer.

Which donations can get you a tax break?
There are thousands of trusts registered in India that claim to be engaged in charitable activities. Many of them are genuine but some are untrue. In order that only genuine trusts get the tax benefits, the Government has made it compulsory for all charitable trusts to register themselves with the Income Tax Department. And for this purpose the Government has made two types of registrations necessary. Only if the trust follows the registration, they will get the tax exemption certificate, which is popularly known as 80G certificate.

How much deduction will I get if I donate?
Firstly, a taxpayer claiming deduction under section 80G should find out the donation amount that qualifies for the deduction. He has to compute the actual donation with reference to the qualifying amount. For this purpose, donations can be broadly divided into two categories:

1. Donations to private trusts

Step 1: Find out the qualifying amount

The qualifying amount under this category will be lower of the the following two amounts:

a) The amount of donation

b) 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act such as 80C (PPF, LIC etc.), 80D (mediclaim), 80CCC (pension schemes etc.

For example, a taxpayer named Laxmi Arcelor has taxable salary of Rs 500,000. He has deposited Rs 70,000 in Public Provident Fund and Rs 60,000 in his company provident fund. He donates Rs 45,000 to CRY (Child Relief & You) trust. Presuming he has no other income, his taxable income will be computed as under:

Gross salary	Rs 500,000
Less: Deduction under section 80C restricted to	Rs 100,000
Gross total income (before 80G)	Rs 400,000

After making donation to CRY, his qualifying amount for 80G will be:

Actual amount of donation	Rs 45,000
10% of Gross total income as computed above	Rs 40,000 whichever is lower

Since 40,000 is lower, the qualifying amount will be Rs 40,000

Step 2: Find out actual deduction
The next question that arises is how much would be the actual deduction? In the case of donations to private trusts, the actual amount of donation would be 50 per cent of the qualifying amount.

Therefore, in the example given above, since the donation is made to a private trust, the deduction will be 50 per cent of the qualifying amount ie 50 per cent of Rs 40,000 = Rs 20,000.

So,

Gross total income (Before 80G)	Rs 400,000
Less: deduction under section 80G	Rs 20,000
Total income (taxable income)	Rs 380,000

Step 3: Check upper limit
Finally, the deduction under section 80G cannot exceed your taxable income. For example, if your income before deduction is Rs 3 lakh and if you have given donation of Rs 5 lakh to the Prime Minister's National Relief Fund, please do not expect to claim a loss of Rs 2 lakhs. Your income will be NIL (Rs 3 lakh - Rs 3 lakh). The deduction will be restricted to the amount of your income.

ii) Donations to trusts/funds set up by the Government
In this category, the entire amount donated ie 100 per cent of the donation amount is eligible for deduction. There is a long list of 21 funds/institutions/purposes for which donations given would qualify for 100 per cent eligibility. Notable among this list are:

- The National Defense Fund

- The Prime Minister's National Relief Fund

- Any fund set up by the State Government of Gujarat for earthquake relief

The funds that figure in this long list are all set up by the Government. Private Trusts do not figure in this list.

Thus, in this category of donations, the ceiling of 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act does not apply.

In the above example, if instead of donating to CRY, had the donation been given to say, The Prime Minister's National Relief Fund, then the calculations would have different as shown below:

Gross Total Income (Before 80G)	Rs 400,000
Less: Deduction under section 80G	Rs 45,000
Total Income (Taxable Income)	Rs 355,000

iii) Donations to approved research organizations:
There are special sections for businessmen and professionals who earn income under the head Profits and Gains of Business or Profession. Section 35AC and 35CCA allow a deduction of 100 per cent of the amount donated for scientific research and rural development to approved research organisations. For this, the research organisation requires the approval of the Government.

Those who do not have any business or professional income (like salaried persons), donations can be given to such organisations and 100 per cent deduction can be claimed under section 80GGA.

What points should I keep in mind for claiming deduction?
Following points must be borne in mind:

i) A stamped receipt is a must:
- For claiming deduction under Section 80G, a receipt issued by the recipient trust is a must. The receipt must contain the name and address of the Trust, the name of the donor, the amount donated (please ensure that the amount written in words and figures tally!).

- The most important requirement is the Registration number issued by the Income Tax Department under Section 80G. This number must be printed on the receipt. Generally, the Income Tax Department issues the registration for a limited period (of 2 years) only. Thereafter, the registration has to be renewed. The receipt must not only mention the Registration number but also the validity period of the registration.

The donor must ensure that the registration is valid on the date on which the donation is given. For example, the registration of a trust may be valid from April 1, 2004 to March 31, 2006. Now, if the trust does not get its registration renewed after April 1, 2006 then even if donation receipt is issued by the trust to the donor for donations received after April 1, 2006, the donor would not get any tax benefit.

So, please check the validity period of the 80G certificate. Always insist on a photocopy of the 80G certificate in addition to the receipt.

ii) File the original donation receipt with your return of income:
For claiming deduction under section 80G, file the original donation receipt alongith the return of income. If the receipt is not filed, you will not get the deduction.

iii) Only donations in cash/cheque are eligible for the tax deduction:
Donations in kind do not entitle for any tax benefits. For example, during natural disasters such as floods, earthquake, many organisations start campaigs for collecting clothes, blankets, food etc. Such donations will not fetch you any tax benefits.

Source: http://wealth.moneycontrol.com/columns/income-tax/complete-guide-tax-sops-on-donations-/12282/0

Budget: Service tax rate may be raised to 12 pc

noreply@blogger.com (FINVESTguru) — Sun, 31 Jan 2010 17:30:00 +0000

With the government's fiscal deficit ballooning, there are chances of service tax rate being restored to 12 per cent in the upcoming

Budget, official sources said.

The government had last year cut down service tax rate from 12 to 10 per cent as part fiscal stimulus measures to help the economy tide over the then slowdown.

Official sources said service tax rates could be raised to the original level of 12 per cent as the booming sector is something the revenue department banks upon but the 2 per cent duty cut has brought a dip in the service tax revenues.

Together with cut in service tax and excise duty reductions, Plan expenditure was also stepped up, leading to widening of fiscal deficit as the total stimulus amounted to Rs 1,86,000 crore.

The fiscal deficit, which was projected to be 2.5 per cent of GDP at the beginning of 2008-09, crossed six per cent by the end of the fiscal. It is projected to further rise to 6.8 per cent this fiscal.

"With rising fiscal deficit to manage and the economy showing some signs of recovery, the government may withdraw the fiscal stimulus, though not completely. Service tax ambit could be widened and the rates may see upswing to the pre-stimulus period," said Ernst and Young Partner and Indirect Tax Leader Vivek Mishra.

Source: PTI

Tax Policy 2010: Climate Change for the Better?

noreply@blogger.com (FINVESTguru) — Fri, 15 Jan 2010 18:32:00 +0000

By Sudhir Kapadia, E&Y

One of the advantages of December year end musings of life in general is the fact that one can 'cherry pick' some salutary omens in the environment, wrap around a comfortably warm blanket and announce to amuch wearied hassled and over worked populace the golden mantra: 'All is well!'. When it comes to musings on India's Tax policy the temptation is no different. After all, we witnessed a bold intent to completely overhaul an over engineered and grammatically battered (and, therefore, incongruous in many parts) Direct Tax law and to subsume a plethora of parallel but often overlapping bouquet of Indirect Tax laws into one integrated Goods & Services Tax Law. If nothing else, these two initiatives demonstrated that at last the winds of change from the Atlantic were making their presence felt in Lutyen's Delhi offering hope that sincere efforts are being considered to make the alarming 'hot' tax climate in India cooler. So how green and soothing will the tax environment be in 2010 and beyond? Here is my prognosis:-

Direct Tax Code (DTC): With the Govt already having identified seven key areas of rethink, there is a question mark on the implementation of the DTC itself. The moot point is whether some of the suggested changes creep their way as 'business as usual' amendments to the current law through the Finance Bill 2009. Some examples of these are as follows:

1) Indirect Transfer of shares : China has recently announced its intent to tax indirect transfer of shareholdings in Chinese companies under specified circumstances a move said to be 'inspired' by India's much celebrated and eagerly watched Vodafone case. Many multinationals hold the view that they would rather have clear cut guidelines setting out the conditions under which India would seek to tax indirect share transfer rather than live with perpetual uncertainty of Indian Revenue's subjective application of the principle of taxing indirect share transfers.

2) GAAR : Here again multinationals and India Inc alike would ideally like the application of time tested 'common law' principles of 'economic substance' over 'form' and onus being on Revenue to prove malafide on past of the tax payer before applying anti- avoidance law. If Revenue is concerned about specific fact patterns or 'tax shelters' it would be far better to have specific anti avoidance rules like in many other countries rather than a general omnibus provision with uncertain outcomes.

3) Indian tax residency definition : Current attempt to rope in foreign companies 'partially' controlled and managed from India for subjecting their global profits to Indian tax would lead to horrendous consequences for India Inc with overseas subsidiaries. This is doubly compounded by the fact that no underlying corporate tax credit for taxes paid overseas is not provided for. The common law principle of 'central management & control' is a far better test to apply and will ensure that genuine subsidiaries and group companies outside India are not ensnared for tax in India.

4) Capital Gains taxation : A vital area of 'simplification' in the DTC is the proposal for uniform rate of taxation for business income and capital gains. The current system of levying Securities Transaction Tax (STT) and exemption of long term capital gains on listed securities from taxation has the merits of simplicity, certainty and avoidance of any leakages in tax collection. Even if there is a policy imperative to abolish STT and bring back capital gains tax, it is essential to retain the distinction between short term and long term capital gains. Whilst world over short term capital gains are treated on par with normal trading income, in the interest of promoting long term capital investments, it is advisable to atleast have a concessional rate of tax on long term capital gains if not complete exemption. Towards this, a rate of 15% tax on long term gains can be considered on par with dividend distribution tax (DDT) in the interest of horizontal equity.

5) Uniform Maximum Marginal Tax Rate : Whilst the much touted sharply reduced Corporate tax rate of 25% in the DTC hinges precariously upon the 'revenue compensating' measures such as the Gross Assets Tax, Finance Budget 2010 could well consider a uniform tax rate of 30% for both individuals ( at the highest slab) and corporates. This would mean a much delayed and over awaited removal of all kinds of surcharges notorious for sticking around much beyond their originally planned tenure.

6) Goods & Services Tax (GST) : GST is by far the most path breaking and revolutionary piece of tax legislation in independent India. As a concept, GST was eagerly awaited by an over burdened Industry grappling with multiple layers of asymmetrical indirect taxes ranging from Excise duties, sales taxes, service tax to a variety of local taxes such as octroi, entertainment and luxury taxes. In it purest form a single uniform GST rate with no exempted items would seamlessly integrate al the different taxes currently prevailing and ensure zero leakage of input tax credits against output tax payable by a provider of goods or services. If implemented with political will and administrative ( and technological) efficiency we could well see an improvement of 2% in GDP of the economy. This ofcourse highlights both the criticality of GST as well as the pitfalls (and lost opportunity) if its implementation is unduly delayed and still worst, done half heartedly.

As with the Climate Summit in Copenhagan, it seems safer to predict a reduction in the 'hot' tax climate in India in the long term while we 'callibrate' our tax temperature in the short term. For the present whether with the physical or tax environment in India we can choose to ignore the obvious challenges and the inevitable sweat and grind amidst us all around and offer a uniquely Indian prognosis for our situation: 'All is well!'

Source : Moneycontrol.com

New tax code may penalise long term investors

noreply@blogger.com (FINVESTguru) — Fri, 15 Jan 2010 18:30:00 +0000

The new tax law may penalise long-term investors

Most finance ministers in the past gave direct tax reforms a miss, preferring discretion to valour, until P. Chidambaram took the bull by its horns and drafted a new code to replace the Income Tax Act of 1961. The new code is expected to simplify the tax procedures and adopt international best practices. But it could be tough on investors because their overall tax burden is likely to increase.

The biggest blow to investors is the removal of tax exemption for long-term capital gains. The code proposes abolishing the securities transaction tax of 0.25 percent, which by itself, would have been welcome. But the code also imposes capital gains tax on all gains made by selling shares, irrespective of the time they were held for. Thus it eliminates the distinction between short-term and long-term gains.

Earlier, gains from the sale of shares after one year were tax-free. Now they will be clubbed with your income and charged at the slab rates going up to 30 percent.

The tax code introduces the 'Exempt-Exempt-Taxation' (EET) method for savings. Under this method, investors will enjoy tax benefits at the time of investment and growth, but will be taxed when they withdraw the money. Earlier, investments enjoyed tax benefits on all the three legs, under the Exempt-Exempt-Exempt system. The only saving grace here is that contributions made to provident and pension funds schemes until March 31, 2011, will continue to enjoy the full exemption.

A key segment to be hit from the EET system will be equity-linked savings schemes (ELSS). These schemes are popular with tax savers. But the new system could make ELSS dividends taxable.

Hiresh Wadhwani, partner at Ernst & Young, says the DTC is doing things backwards. He says the code accords tax benefit to a saver when he has earning potential, but will tax him in his old age. "This might work better in a developed country but not in India. We need a TEE system, Tax-Exempt-Exempt, for the Indian context," he says.

The burden of wealth tax is also likely to increase. Surely, the code proposes raising the exemption on wealth tax to Rs.50 crore and a tax of 0.25 percent for wealth above that threshold. That is, a wealth of Rs. 51 crore will attract a tax of only Rs. 25,000. Sounds good. But the definition of "wealth" has now been expanded to include shares and financial instruments.

So, even promoter holdings in companies become taxable. "But even then, it's a minimal rate. I think it's quite fair, especially for rich promoters who have multiple holdings on listed entities, as they will see increased outflows annually," says Uday Ved, head of tax at KPMG India.

The direct tax code is not yet law and the government is reviewing many aspects of it. It might be a bit harsh on the investors in the form P. Chidambaram got it drafted when he was finance minister, but there is still hope that Pranab Mukherjee may soften it a bit.

By: Shloka Nath/ Forbes India

New to investing in shares? Here are some dos and don'ts

noreply@blogger.com (FINVESTguru) — Fri, 08 Jan 2010 18:11:00 +0000

It often happens that the first-time investors take to investing in shares motivated by the fascination toward the stock market, and in most of the

cases they ignore the rationale behind a rise or fall of a company's share. It is not always the case that whoever enters the stock market, leaves with a neat profit. Rather, it is much easy to enter the market, and equally tough to stay invested and make profits consistently. Listed below are certain dos and don'ts for those who are new to the volatilities of the stock market.

THERE'S NO LUCK BY CHANCE

If your objective is make a quick buck in a short span of time then you need luck more than anything else to be successful. Be ready to suffer the losses as well because in the short term share prices can move sharply in either direction without any apparent reason. Best is to avoid equity investing if you don't have a clear idea about that company. Approach with a proper plan before you start buying into shares. Check the company's financials and its business before you put in your money in it.

LEARN THE NITTY-GRITTY

Educate yourself about how the market works before jumping on the bandwagon. Seek professional advice and follow a gradual approach. Increase your exposure as you gain experience. Avoid burning your fingers to learn the tricks of the trade. And never ever invest by relying on tips given by your broker, a trader friend or office colleague. The best of experts can't predict the stock price movements with certainty and very often those who suggest may have their own personal agenda.

START WITH THE FRONTLINE A-GROUP STOCKS

Because, if markets turn adverse, frontline stocks are always liquid and you can sell your investments anytime and at least limit your losses. In contrast, small- and mid-caps stocks are subject to circuit filters, which means you cannot liquidate your investments in a falling market and thus your money gets locked. Besides, most of the A-group stocks belong to reputed business houses. If you stay invested for longer terms, there's a very slim chance of losing money in these counters unless the market sentiments turn too bearish as it happened in 2008. Other advantages with A-group stocks are that, they are widely tracked by brokers and the financial media. This minimises the chances of nasty surprises, which can change the market outlook about the company overnight. In contrast penny stocks may even destroy your initial investment and may vanish without a trace. In such a scenario, if a first time investor burns his finger in the initial attempt there is a chance that he may resist investing in stock markets, which is not desirable.

CUT YOUR COAT ACCORDING TO YOUR CLOTH

Don't be over-ambitious in your first attempt. This means following a conservative approach to portfolio building by using your surplus savings even if it amounts to a few thousands rupees every month. Best is to use only that part of your savings, which you are less likely to use in next one year under any circumstance. Never borrow money to play in the stock market, and neither should you get tempted to use the margin funding provided by many brokerages to first time clients. In the short run stock market may move in either directions for no apparent reason and as such an ambitious investment in equities may upset your financial plans.

PLAY SAFE

Don't be reckless while investing. Invest in limited number of well-known stocks with limited exposure in each stock. Never try to juice-up your returns by playing in the futures & options segment. F&Os are double-edged swords just as they magnify your returns in good times, they also multiply your losses if your call goes wrong. It's best to stick to the cash market, where at least you will own a share even if its price has fallen in the short-run. If the company is good there is a high probability that you may ultimately recoup your investments and even make money in the medium to longer term.

INVEST WITH A LONG-TERM HORIZON

While gains may start accruing immediately after investing in a stock, investors generally, and firsttime investors in particular, are advised against booking profits on their investments in the short term. This is because little gains booked on your investments may not significantly contribute to your monthly income. But a long-term investment would provide not only a healthy capital appreciation but may also give you a regular and growing dividend income. Moreover, a long term investment in equities can prove to be a good source of wealth in later life.

BUY WHEN EVERY ONE IS SELLING

First-time investors typically invest in stocks enticed by the noise and din created by a rising bull market. But you are better off entering the market when others are selling and the market or a particular stock is falling and not in flavour. Buying when everybody is buying raises your acquisition cost and minimizes the chances of an upside. There is no rocket science here, it's a simple rule of life higher an object goes, greater is the probability of its falling and vice versa. Remember in the stock market, nothing is guaranteed; you can just hope to improve your odds by buying low and selling high.

LOW MARKET PRICE DOESN'T MEAN IT'S CHEAP

Don't invest in a stock by just looking at its current market price, a stock with a lower market price compared to another stock in the sector doesn't necessarily former is cheaper. A stock's market price is a function of its number of floating shares, its net worth (book value), earning per share and its price to earnings multiple. It may happen that a stock with a market price of Rs 4,000 per share may be cheaper than a stock with market price of Rs 100 per share because the former may have few outstanding shares and very high earning per share say Rs 400 per share, which translates into a P/E multiple of 10. In contrast, the latter may have a very large number of floating shares and an EPS of say 5, which translates into a P/E multiple of 20. So, in the above example, the latter is twice as expensive as the former.

BE CAUTIOUS WITH IPOS

While investing in IPOs, select IPO of a company with a good track record and low valuation. Read enough about the company's business and growth prospects before taking the plunge. While investing in an IPO for the first time, don't subscribe to it with a short-term intention of making listing gains. This is because, not all companies end up producing gains for the investor immediately after the listing. Making a beginning in the stock market maybe a lot easier, but building a fortune takes time. One should be careful and must not overleverage. Well-known investor Warren Buffett said: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Clarity needed on credit card payment due date

noreply@blogger.com (FINVESTguru) — Thu, 07 Jan 2010 18:24:00 +0000

What is the definition of "due date" for paying credit card bills? According to a senior banking ombudsman official, card customers are "unofficially'' given "a grace period'' of about three days after their due date if they choose to make a cheque payment, to allow the amount to get credited into their account. In other words, no late-payment charges are levied.

In sharp contrast, heads of leading card-issuing banks say their terms and conditions, bill statements and websites clearly mention that cheque payment must be made three to five days (in case of outstation cheques) before the due date so that it comfortably reaches their account by the deadline.

Now, suppose there is a string of bank holidays and weekends between cheque deposit and its clearance. If a cheque does not get cleared for reasons over which a consumer has no control, he/ she would still end up paying penal charges.

A senior Mumbai banker admits that due date-related disputes are common and consumers have been demanding clarity on the issue. K Unnikrishnan, deputy chief executive, Indian Banks' Association, seconds that there is a need to bring in uniformity in cheque deposit norms with reference to due date.

Sanjeev Talwar of Delhi-headquartered National Consumer Helpline adds that this issue is all the more serious because such a "default'' would show up in a consumer's credit history at Cibil (Credit Information Bureau India), which banks look up before deciding whether to lend.

To top it, says the banker, in India, customers have to first pay a charge and then dispute it. In developed countries, a card subscriber can choose not to pay a part of the billed amount he or she wishes to dispute.

Till the time banks come up with clear guidelines, customers are advised to pay way ahead of the stated due date. Besides, if they end up paying closer to the payment deadline, they must avoid depositing their cheques in drop boxes.

As mentioned earlier in these columns, the Reserve Bank of India rules specify that banks must accept all cheques at counters and provide an acknowledgment receipt to the customer. This would serve as a proof of deposit in case of a dispute, if any.

Alternatively, banks are increasingly introducing "cheque deposit machines, which work like a screener and give you a receipt, which is a replica of your cheque with all the details,'' says a bank executive. Other than the convenience of not having to queue up at a counter, they provide the relevant proof. Consumers must know that dispute resolution relies on documentary evidence.

Source: Economic Times

Flash your card, but avoid these mistakes

noreply@blogger.com (FINVESTguru) — Thu, 07 Jan 2010 18:21:00 +0000

With the festive and year-end preparations in full swing, several families are loosening their purse strings. Add to that the convenience that plastic money offers, and it's very easy to let the itch to spend go out of control. If you are one of those who flash your credit card frequently, you would do well to steer clear of the following pitfalls:

Not reading the fine print

One of the primary causes of disputes is lack of awareness of the terms and conditions that govern the use of your credit card. "Many people who come to us are not aware of the rate of interest, charges, etc, that their credit cards entail, which, many times, lead to overspending and penalties," says Abhay Credit Counselling Centre head VN Kulkarni.

Paying minimum amount due

Several credit card users are under the impression that paying the minimum amount due every month specified by credit card issuers will reduce their outstanding amount in the due course. However, the fact is that it will only push you deeper into a debt trap. The card issuer considers the remaining balance to be overdue and charges a hefty interest, which could vary from 42-49% per annum. Given this, the debt burden is unlikely to be eased by paying the minimum amount due.

Unresolved disputes

Several credit card users, in the event of a dispute, prefer to ignore the follow-up calls from the issuer to pay up. It's best to resolve the same as soon as possible as the interest will continue to be charged till you repay the dues. In addition, late payment fees and other penal charges could be levied and significantly inflate your original outstanding amount.

Drawing cash With card

Although you can withdraw cash from the ATM using your credit card, it's certainly not a healthy practice as you may have to incur additional charges, which vary as per the bank. Also, many are not aware that when a credit card is used at an ATM, the interest is charged that day onwards and not after the credit period of 45 days, as is usually the case with swiping the card.

Borrowing to invest

As the last date for making investment declaration falls on December 31 for many salaried individuals, there is a tendency to use the credit card to make tax-saving investments. Considering that the interest charged on credit card outstanding (if not repaid during the credit period) is exorbitant, using it to make investments will actually erode your capital. Therefore, ensure that you use it only if any cash inflow is expected within a month.

Overdrawing the limit

"Many credit card users are not aware that their credit limit encompasses any charges levied by the bank. Therefore, if you are paying an interest on the earlier outstanding amount, and yet use up the entire limit, the card issuer could levy overdrawing charges," points out Disha Financial Counselling Centre chief counsellor Madan Mohan.
Delay in reporting loss
"We have had to deal with several cases where card users have reported loss or theft of credit card to their card issuers after 3-4 days, resulting in miscreants siphoning off the money," informs Mr Kulkarni. Remember, credit card issuers will not be held responsible for any misuse during the period they were not intimated of loss or theft.

multiple Credit cards

While opting for more than one credit card is not a cause for concern, there is a chance it could lead many users into a debt trap. Many borrowers end up using one credit card's limit to repay another card's amount outstanding, paying a huge interest in the bargain. Also, many opt for certain credit cards only to avail of discounts and freebies that they offer. It is important to realise that credit cards should be maintained solely with the intention of tapping the same during emergencies.

No-due certificate Absence

While paying dues to the credit card company under a compromise settlement, you must insist on a 'no-due certificate' stating that your dues have been cleared. The letter should also contain an assurance that the settlement will be reported to CIBIL. This will ensure that you can produce the proof of repayment if your loan application is rejected by another lender, citing unfavourable credit history in the future.

Not keeping PIN under lock

While being secretive about passwords is common sense, many tend to share it with people who they consider trustworthy, disregarding the fact that cases where the trust was broken are not rare. Although the introduction of a two-factor authentication system has tightened the security mechanism, it is extremely important to give top priority to safeguarding your personal identification number (PIN). Source: ET Bureau

Loan against property vs personal loan

noreply@blogger.com (FINVESTguru) — Thu, 07 Jan 2010 18:13:00 +0000

You may have a lot on your mind when it comes to sending your children for education abroad or maybe finance your business or even finance your child's wedding. The first thing that would come into the mind of most of us is,

'Where would I get the money from?'

There are many ways you could arrange for money, and one of those ways is taking a loan. You could take a personal loan for the amount required, or you could take a loan against your property.

What is a loan against property?

A loan against property (LAP) is exactly what the name implies - a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value, usually around 40% - 60%. Loan against Property belongs to the secured loan category where the borrower gives a guarantee by using his property as security.

What purposes can I take a loan against property for?

Loan against Property can be taken for following purposes:

1. Expanding your business
2. Getting your son/daughter married
3. Sending your son/daughter for higher studies abroad
4. Funding your dream vacation
5. Funding medical treatments

What kind of properties can I mortgage for a loan?

You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.

What is the eligibility criteria to get a loan against property?

This criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:

1. Your income, savings, debt obligations
2. Cost/value of the property mortgaged
3. Your repayment track record for other loans, credit cards etc.

What are the normal interest rates and tenure for repayment offered for a loan against property?

Interest rates on loan against property range from 12% -15.75% and the loan tenure can be up to 15 years.

How is a loan against property different from a personal loan?

Loan Against Property	Personal Loan
The individual takes the loan by mortgaging the house property	An individual can take a personal loan for personal use without any security or guarantor
One of the cheapest retail loans after home loans; usually in the range of 12% - 16%	Higher interest rates compared to LAP; usually issued at interest rates in the range of 16% - 21%
Since the rate of interest is lower, frequently LAP Equated Monthly Installments (EMI) turn out cheaper	Since the rate of interest is high, the Equated Monthly Installments (EMI) for personal loans are high
Maximum loan eligibility is determined primarily by the value of the property and income	Maximum loan eligibility is determined primarily by an individual's income
Maximum loan tenure for LAP is up to 15 years (180 months)	Maximum loan tenure for personal loan is up to 5 years (60 months)
Secured loan	Unsecured loan

What documents are required for applying for a loan against property?

Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.

Salaried Customers	Self Employed Professionals	Self Employed Businessman
Application form with photograph	Application form with photograph	Application form with photograph
Identity and Residence Proof	Identity and Residence Proof	Identity and Residence Proof
Latest Salary-slips	Education Qualifications Certificate and Proof of business existence	Education Qualifications Certificate and Proof of business existence
Form 16	Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet	Business profile Last 3 years Profit /Loss and Balance Sheet Last 3 years Income Tax returns (self and business)
Last 6 months bank statements	Last 6 months bank statements	Last 6 months bank statements (self and business)
Processing fee cheque	Processing fee cheque	Processing fee cheque

A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property. Base your decision on your repaying capabilities.

Source: http://economictimes.indiatimes.com/Personal-Finance/Loan-Centre/Personal-Loans/Personal-Loans-News/Loan-against-property-vs-personal-loan/articleshow/5240002.cms?curpg=2

What drives real estate prices in India?

noreply@blogger.com (FINVESTguru) — Wed, 30 Dec 2009 18:30:00 +0000

What drives real estate prices in India? The factors vary from city to city. In most countries, the construction of a noisy airport may be reason for residents to flee, but in India, the prospect of Mumbai's second airport coming up near Khargar is driving up prices.

According to Gulam Zia, national directorresearch and advisory services, Knight Frank, the Navi Mumbai area from Vashi to Panvel is likely to grow faster than other locations in Mumbai.

This is primarily due to the expectation that the new airport could come up here in the next 6-7 years in addition to the trans-harbour link. The entire look of Navi Mumbai could change in the coming few years, as Kharghar and Nerul record multi-fold growth.

Noida and Ghaziabad are coming up well due to the metro projects shaping up in the vicinity. There are plans to extend the metro network to Manesar as well. These are the areas that are emerging quite fast and good growth is expected here.

In Chennai, it's the OMR which is short for Old Mahabalipuram Road that is turning out to be the city's IT corridor. The IT industry is the economic growth driver in the region. Further up, the area around Mahindra World City is also seeing a lot of development. Industrial growth in this region is a huge contributing factor. Overall, a balanced mix of growth is being witnessed in this corridor.

Disruptions over Telangana aside, for Hyderabad, the major growth areas have always been Gachibowli, Madhapur, and Shamshabad. Again, IT is the key driver for growth. A huge amount of supply of real estate can be seen in Hyderabad. "Overall, the city is not as attractive for investment as other southern cities at the moment, or for that matter other cities in our top 10 list," says Mr Zia.

In Bangalore, locations which provide good enough growth from the IT angle include, Sarjapur and the Ring Road junction area. A peculiar aspect to note is that around the Electronic City and Whitefield area, good development is being seen, but these two localities are struggling for infrastructure.

However, these two areas will see good growth in the next two years. The other localities to watch out for include the area around the road connecting the new airport and Hebal, as they are likely to grow considerably in the coming years.

In the East, Kolkata is the only city that figures in the top 10 list of cities that are expected to see substantial growth. "Kolkata is also banking on the IT story. Several projects are expected to come up in Rajarhat and Salt Lake. Other emerging locations include Mahesh Tala and Tara Tala. Many new townships are being constructed in Tara Tala, gradually transforming it from an industrial zone to a residential township. This will be a promising area in the future," informs Mr Zia.

Source:http://economictimes.indiatimes.com/markets/real-estate/realty-trends/What-drives-real-estate-prices-in-India/articleshow/5389695.cms

What your portfolio should consist of in 2010

noreply@blogger.com (FINVESTguru) — Wed, 30 Dec 2009 18:18:00 +0000

The year draws to a close ending with it one of the most phenomenal stock market rallies ever seen. In March this year, the Bombay Stock Exchange's benchmark Sensex levelled out at close to 8,000 levels and today it hovers above the 17,000 mark. Market sentiment eagerly eyes the Sensex breaching its all-time high of 21,000 level going into the next year.

"2010 will be far more interesting year for investors because they will have more confidence in the equity markets," says Amit Dalal of Amit Nalin Securities. For the next year, Dalal marks out the budget in February and how the government shows it intends to handle its burgeoning fiscal deficit as a key risk for markets. Among other things, he said high inflation and a repeat dry spell a la 2009 could play spoilsport. "But overall, I see more positives than negatives and the call is the Nifty rises 10% in the year from 5,200 currently to 5,700 levels," he said. The Nifty's all-time high is close to 6,400 that it reached in January 2008, post which a sell-off of unprecedented magnitude saw it retrace to 2,500 levels in a year.

Jagdish Malkani says the theme of the markets, of late, has been midcap and smallcap stocks as largecaps that have a had a big rally post March have been cooling off. "It's the classical bull market," he says, "There was talk of the Delhi-Mubai rail corridor and rail stocks went on a year. There is sector rotation going on rail, cement, steel."

Malkani, however, warns investors who buy a lot of midcaps to be nimble-footed as in any sell-off, the worst hit would be the smaller stocks.

Themes for 2010

"For 2010, I would go for deep value, some of these holding company types, which are trading at a fraction of what they are intrinsically worth," Malkani says, "Or I would actually look into midcap arena for possibly the couple of media stocks that are appealing, in the IT space and even in pharmaceuticals."

Dalal of Amit Nalin says he would lift some money off the table from stocks like those with rural consumption theme that have done well this year.

"We have seen almost like a bubble in the economy in demand for products coming from the rural side. A lot of it is because of the government spend rather than an improved productivity coming from the rural economy on its own. So I would be very wary of owning stocks in that particular sphere," he said. "Technology has had a stupendous run and we have started discounting things, which the markets still do not understand in terms of what the changes in prospects are. A lot of it is speculation in terms of what the change can be and there the PE ratios have expanded a lot. So I would reduce weightages in that sector too."

Source : Moneycontrol.com

Expect moderate returns in 2010

noreply@blogger.com (FINVESTguru) — Tue, 29 Dec 2009 19:11:00 +0000

Consequent to the sharp run up in markets in 2009, investors will have to be
careful in picking stocks while lowering their return expectations

After the astonishing performance in 2009, which has helped Indian stock
markets emerge among the best performing markets globally with year-to-date
returns of almost 80 per cent, the year 2010 could prove to be a
disappointment.

The BSE Sensex has more than doubled since its lows of sub-8,000 levels in
March 2009 is no secret. However, the Sensex now trades at 16 times its
estimated 12-month forward earnings wherein most of the positives, primarily on
account of improving economic fundamentals and corporate earnings, seem to be
priced in. Notably, since the up move has been due to the expansion in
price-earnings (PE ratio) multiples, it is the turn of corporate earnings to
catch up and make a case for the valuations to sustain at higher levels.

It is largely due to these reasons, experts believe that the markets will
remain in a narrow range and suggest that the Sensex may provide returns of
about 10-15 per cent by the end of December 2010. Most brokerages have set a
12-month target of 19,000-21,000 for the Sensex. Their modest expectations are
also due to some concerns that will have to be overcome, which in a way
indicates that investors need to be cautious as the risk-reward ratio is not as
favourable as it was in 2009.

Cautious mood...
The tightening of liquidity and hike in
interest rate, which is pretty much on the cards, could dampen sentiments of the
markets, believe experts.

The other concern pertains to the strength of global economic recovery
besides, a roadmap regarding withdrawal of stimulus packages (by different
countries) and its likely impact. Thirdly, although global liquidity is high,
with many Indian companies lining up to raise funds, it will test the ability of
the markets to absorb the increase in supply of paper.

Since global markets have seen the dollar weaken, leading to demand for real
assets like commodities, any sharp rebound in the dollar against major
currencies could reverse some of the dollar carry-trade (investors take cheap
dollar loans with an aim to make better returns by investing in other asset
classes) and pose additional concern. Lastly, concerns pertaining to sovereign
risks like the episodes of Dubai and Greece, could trigger a sell off in
emerging equity markets, and impact the ongoing recovery....but, still
positive

The markets are positively hoping that India’s government would unleash major
reforms, including implementation of Goods and Services Tax (GST) and Direct Tax
Code (DTC), which will provide a stepping stone for the next leg of economic
growth. Government’s fiscal prudence by speeding up the disinvestment process
(selling small stakes in public sector enterprises) would also be closely
watched. However, at this point in time, since the concerns are slightly more
than the positives and a lot of the good news is already priced in, the return
expectations from the broader market are moderate. Experts, thus, suggest that
in order to get superior returns in 2010, the best investment strategy would be
to adopt a bottom-up approach namely, picking individual companies, particularly
in the mid cap space.

The reason for being selective is primarily due to the fact that many
companies are still surrounded by concerns (like excessive debt, low demand,
etc) and are yet to show clear signs of a revival in their earnings.

Below are ten companies, which should do well and deliver above-market
returns in 2010. Most of these lead in their businesses, are well-managed and
have strong entry barriers. More importantly, their future prospects look good.
Although a few have high-debt on their books, they are experiencing a revival in
demand for their products and services and are taking steps to de-leverage their
balance-sheets. This along with relatively cheaper valuations will help them
deliver better performance as well as returns.

To know more on individual companies, read on.

HDFC
Higher liquidity and low interest rates have lowered
HDFC’s cost of borrowings. This could cushion it’s margins, in spite of the
company’s low home loan rate offerings starting at 8.25 per cent. The company is
observing good demand in the Western and Southern regions. Although interest
rates are expected to inch up in 2010, demand for home loans is likely to remain
healthy on the back of an improving economy. HDFC’s overall loan book is
expected to increase by 20-23 per cent in 2010-11. It’s recent acquisition of
Credila Financial Services gives it an entry into the education loan segment,
which is seen growing at 25-30 per cent annually. Further, value unlocking would
happen if its 10-year old subsidiary, HDFC Standard Life, comes out with an IPO.
HDFC is trading at 3.5 times its 2010-11 adjusted book-value and can deliver
over 20 per cent returns.

TOP PICKS FOR 2010
in Rs crores	Net sales		Net profit		Market Cap	PE (x)	Price (Rs)	PE (x)
in Rs crores	Sept 09	% chg	Sept 09	% chg	Market Cap	PE (x)	Price (Rs)	FY10E	FY11E
HDFC	3,872.0	16.7	2,509.0	14.7	75,798.0	30.2	2,652.0	4.4	4.0
Indian Hotels	1,338.0	-26.6	117.0	-70.0	6,975.0	46.4	96.0	35.1	21.0
Jain Irrigation	2,339.0	20.4	153.0	13.3	6,267.0	37.5	830.0	24.4	16.0
Larsen & Toubro	34,313.0	16.6	2,978.0	26.9	100,977.0	21.5	1,682.0	24.8	21.0
Pantaloon Retail	6,608.0	20.7	148.0	11.9	7,654.0	51.7	371.0	29.7	21.0
Reliance Infra	9,966.0	28.1	1,221.0	5.7	24,910.0	20.4	1,100.0	16.1	16.7
SBI *	58,732.0	26.4	13,022.0	38.0	140,823.0	11.1	2,218.0	2.6	2.1
Suzlon Energy *	24,988.0	34.3	-236.0	-	13,730.0	-	88.0	80.2	17.6
Thermax	2,902.0	-10.5	266.0	-3.0	7,075.0	26.1	94.0	26.7	20.5
United Phosp.	5,129.0	17.4	504.0	29.7	7,286.0	14.8	166.0	13.6	10.2
PE & Financial figures are for 12 months ended September 2009 % chg is for the corresponding trailing period, For banks: Net sales=Total income and P/E is P/Adj BV * Consolidated E: Estimates Source: CapitaLine Plus

Indian Hotels
The rise in occupancies in the second and
third quarters of 2009-10 indicates a change of fortunes. Compared to 52 per
cent occupancy in June 2009 quarter, the same stood at 60 per cent in September
quarter. The third quarter has started well; analysts expect occupancies to
average around 80 per cent in the second half of 2009-10. This is on the back of
an increase in tourism and corporate travels. Apart from the domestic business,
the long awaited turnaround in profitability of international properties would
also boost Indian Hotels’ earnings. Room rates, too, have improved at select
properties, and if the trend continues it would augur well for the
company.

Jain Irrigation
Jain Irrigation, a leading
company in micro irrigation systems (MIS), food processing and pipes, is a good
play on agriculture growth and rising farm incomes. Its MIS division is expected
to grow by 30-35 per cent over the next two years as penetration levels increase
due to the efforts by various state governments. The company is exploring new
markets and is further expanding its equipment range to cover crops such as
cotton, groundnut, potato and vegetables.

SOME MORE PICKS
in Rs crores	Market cap	CMP (Rs)	Trailing PE (x)
Bartronics India	447.0	143.4	4.8
Crompton Greaves	15,432.0	421.0	23.0
IRB Infra	8,048.0	242.2	34.6
IVRCL Infra	4,789.0	358.7	21.5
K E C International	2,854.0	578.5	35.5
Lupin	13,020.0	1,465.0	22.7
M & M	29,713.0	1,061.9	21.7
Opto Circuits	4,196.0	229.4	17.7
Praj Inds.	1,902.0	103.0	15.9
Sun Pharma	32,386.0	1,563.7	22.8

Benefits will also come from the expected improvement in profitability of its
overseas subsidiaries. Though its pipes and food processing (over 55 per cent of
total revenue) businesses are seen growing at a relatively slower pace, they
should also do well on the back of improving demand and lower input costs.

Larsen & Toubro
The revival in industrial capex,
particularly in the power sector, along with higher spending on infrastructure
mean better prospects for India’s largest engineering and construction company,
L&T. Notably, the gains from its diversification into growing sectors like
power equipment, shipbuilding and forging along with huge opportunities in
nuclear power and defence equipment, will start paying off in the form of higher
order inflows in the coming years. L&T is also foraying into the power
generation segment with an aim to have 7,000 mw capacity over the next five
years. Meanwhile, it’s existing order book of Rs 81,623 crore (2.3 times 2008-09
revenues), provides good visibility, and should drive revenue growth in the
coming years. In terms of profits, analysts expect it to grow at about 20 per
cent over the next two years.

Pantaloon Retail
An improving economic and employment
outlook as well as encouraging demographics suggest better days ahead for the
organised retail players. For Pantaloon, it expects revenue growth to average at
25 per cent over the next two years aided by its plans to nearly double its
total retail space to 25 million square feet by 2013-14. Its focus on cost
efficiencies should ensure that profits grow faster. The company plans to raise
Rs 1,000-1,200 crore through various instruments to help fund its expansion
plans and repay debt. Lastly, its move to reorganise its businesses into
separate entities should help unlock value in the long run.

Reliance Infrastructure
Reliance Infra could be a good
investment given its low valuations and growth in the construction and power
businesses. The company’s EPC related order back log is robust at Rs 19,600
crore, and is expected to grow given that work for about 28,000 mw of capacity
of Reliance Power is yet to be awarded. Further, its increasing focus and strong
portfolio of 730 km of road projects and, scheduled completion of the Delhi and
Mumbai metro projects over the next nine months, augur well. Also, increased
contribution from its power business and improving margins due to lower
commodity prices should result in higher profitability. Analysts value the stock
at about Rs 1,350 per share based on its investment in various companies and
cash in the books.

SBI
During 2008-09, SBI increased its loan book faster
than its private peers. Analysts expect the trend to continue with an upward
bias on the margins also. Nevertheless, RBI’s mandate to increase its
provisioning coverage to around 70 per cent could put pressure on its
profitability in the short-term. However, favourable policy initiatives like
scrapping of SBI Act, consolidation of associate banks with SBI, and likely
listing of its life insurance subsidiary could act as future triggers. Although
the bank may have to raise funds in 12-18 months, the same would provide fuel
for funding future growth in its businesses. Major concerns over restructured
assets impacting financials would taper off, slowly but surely, as the economic
growth momentum picks up further, leading to better stock valuation.

Suzlon Energy
Suzlon could be a good play given the
increasing focus on renewable energy globally. Demand for wind power equipment
has been lower in the recent past, but should improve in two of Suzlon’s largest
markets (US and Europe) helped by customers getting easier access to funds.
Suzlon is also taking steps to bring down its leverage. Recently, Suzlon’s
promoters invested money in the company, while the company raised funds by
selling its stake in its Netherland-based subsidiary, Hansen, which was used to
pay some of its debt. Meanwhile, Suzlon is in the process of restructuring its
remaining debt, which lower the pressure on its cash flow and earnings. Suzlon’s
stock is currently trading at cheaper valuations as compared to its peers due to
concerns over debt and lower demand. But, as things improve, expect it to get
rerated, which indicates potential for strong upside.

Thermax
Thermax, a leading player in the environment and
energy equipment business, could benefit from the growing environment concerns
globally and an expected revival in India’s industrial capex. The company is
already making efforts to gain orders for its waste treatment business for
domestic municipal corporations. In power, while Thermax is leader in small and
medium sized industrial boilers, it is now eyeing large-size projects on the
back of an increase in its boiler manufacturing capacity which now stands at
about 1500-2000 mw. The company also forayed into sub-critical power equipment
segment through a technical tie-up, which should boost growth rates going ahead.
Meanwhile, its strong order book of Rs 5,056 crore provides good visibility,
which along with the benefits of lower commodity prices will mean higher profit
margins.

United Phosphorus
United Phosphorus (UPL), which operates
in two main segments (crop protection and seeds), is another stock to play on
the agriculture growth story. It generates about 80 per cent of its revenues
from international markets. As UPL integrates its several overseas subsidiaries
and increases focus on the US and European markets for the generics opportunity
in crop protection products, expect growth rates to perk up. Additionally,
improved outlook for the domestic agriculture market should benefit Advanta
India, a listed subsidiary of UPL which has a strong position in the domestic
seeds market. Overall, its robust portfolio, strong distribution network and
established presence in growing markets should help sustain healthy growth. The
company’s net profits are expected to grow at about 25 per cent annually over
the next two years.

A
WATCH-LIST FOR 2010

Stocks of cyclical sectors such as commodities, including metals, have rebounded
sharply on the back of higher global prices. While the demand is yet to pick up
in a meaningful manner, the price rise is largely attributed to investors
seeking real assets on account of dollar’s weakness, all of which indicates that
there is little room for appreciation in 2010.

There is high certainty about interest rates moving up in 2010, which may not
sound positive for sectors like automobile and real estate. Stocks in the two
sectors have already given strong returns in 2009, and hence, are likely to
underperform in 2010.

Despite expectation of higher interest rates, the credit growth which has
slipped to about 10 per cent recently is expected to bounce back to 16-18 per
cent going ahead. This would mean good news for the banking sector. Higher
economic growth and improving industrial numbers would translate into increased
spending by consumers and industries in 2010. Thus, the capital goods or
industrial sectors should do well particularly.

Higher agri-commodity prices, rising farm incomes and focus on increasing agri
output is good news for agri-based companies, particularly sugar, given the
demand-supply mismatch. Hence, they should do well.

Selectively picking companies which felt the hardest impact on their financial
performance due to the demand slowdown and global crisis might lead to high
returns. Such companies could get re-rated as economic conditions normalise
resulting in improved earnings. Return of risk appetite will also help companies
raise funds through QIP, etc and de-leverage their balance-sheets.

Source:

http://www.business-standard.com/india/news/expect-moderate-returns-in/380865/

2009: A makeover year for MFs

noreply@blogger.com (FINVESTguru) — Tue, 29 Dec 2009 18:54:00 +0000

2009 has been a year where the mutual fund industry has witnessed a transformational shift in the way business is done. CNBC-TV18's Mrinalini Krishna and Priyal Guliani report on how the Securities and Exchange Board of India (SEBI) has enforced game changing moves in mutual funds.

No entry load - 2009 highlight

Market regulator SEBI cleaned up of the mutual fund industry, bringing in a flurry of reforms and ushering in transparency. The most significant one was the abolition of entry fee on mutual fund schemes.

On June 18, 2009, CB Bhave, Chairman, SEBI, had said, "There will be no entry load on any mutual fund schemes. The investor will decide the commission that he is to pay to the distributor directly. The board also decided that if the distributor is selling different schemes then he must disclose to the investor as to what commission he is getting for different schemes."

So far, every time an investor bought a mutual fund, a fee of 2.25% was charged upfront by asset management companies (AMCs) and mutual fund distributors. But now, fund houses and distributors had to learn to live by the new rules, where the customers could choose to pay an advisory fee.

Despite this shift, fund houses saw their average assets under management (AUM) rise. They crossed Rs 6 lakh crore in May, Rs 7 lakh crore in August and Rs 8 lakh crore in December.

But equity funds saw outflows to the tune of over Rs 5000 crore since August, largely due to profit booking. New fund offers (NFOs), the key sales drivers for the industry, failed to take off with nine new funds managing to garner a little over Rs 1000 crore.

Regulator's tough stance

The regulator, meanwhile, came down on fixed maturity plans (FMPs) as well. It directed that no indicative yields were to be announced for any debt mutual fund and liquid funds were allowed to invest into money market instruments of upto 91 day tenure only. That's not all the regulator demanded that the trustees of asset management companies played a more engaging role.

In October 2009, KN Vaidyanathan, Executive Director of SEBI, had said, "Our sense is to re-emphasise the sense of responsibility and accountability that the trustees have. They are the investor facing entities, they have the fiduciary responsibility in a sense they are the first level regulators."

Year-end cheer for MFs

By the end of the year, brokers had something to cheer about. They could now buy and sell mutual funds through exchanges, pretty much like stocks.

The mutual fund industry has changed over the last year, possibly beyond recognition. The new regulations have broken the shackles of traditional practices and have made mutual funds one of the most affordable and accessible financial instrument for Indian investor.

Source : CNBC-TV18

The most interesting events and trends in the year 2009

noreply@blogger.com (FINVESTguru) — Mon, 28 Dec 2009 18:04:00 +0000

Not many in the financial world were happy in welcoming 2009. The financial meltdown that rocked the world had left a bitter taste in the mouth of investors. However, looking in the rear-view mirror, the year does not look all that bad. Rather, it gives us a new perspective of the financial world. Revival was the buzzword in 2009a revival in the economy, an uptick in the job market, resurgence in automobile sales, and not to forget the surprise comeback of the bulls on D-street.

In the hindsight, 2009 was an unconventional boom year with surprises galore. Take for instance, the sharp recovery in the benchmark Sensex. In the second half of the year, it did regain most of the lost ground but the stocks that led the rally were not among the usual suspects. Winners emerged as losers, and the laggards of the past have become the reigning champions.

It's no surprise that only a handful of investors are left happy despite the stock market rally. For some the recovery brought back hope and reinforced their faith in financial conservatism and prudence; but for others 2009 was also a lesson in investing.
This week, ET Intelligence Group decided to take a walk down the memory lane. We recall some shocks and some surprises of the year, which reinforce the old wisdom that there can never be a single, all-weather winning strategy. Here are the 10 events of 2009 that shocked and enthused us.

Satyam opens pandora's box

Ramalinga Raju, the former promoter chairman of Satyam Computer Services sent a chill down the spines of the investor community with his 'honest' confession of cooking up the accounts of his IT services firm. The lesson learnt was never ever put a blind faith in what the management says, even if you are talking about a company with high foreign institutional investment and part of the benchmark indices. The silver lining in the entire saga was the government's prudent efforts to find a suitable suitor for Satyam in less than six months after crisis.

Governments to the rescue

Governments don't enjoy great reputation among market men. Financial markets usually react negatively to the news of any government intervention in business and economy. However, like many other beliefs, this was demolished this year. In 2009, the governments greatly expanded their role in their attempt to bring stability to the economy. And the move was cheered by the market men.

Nowhere was this more visible than the fiscal stimulus provided by the government, which translated into handsome gains for India Inc that in turn became the basis for the ensuing bull-run. At the beginning of the year, no one in the market believed that government would be so steadfast in its support to the market and business.

However, as we enter the new year, the most pressing questions on everyone's mind is when will the government turn off its tap and how will the financial market react to it. Because, there's nothing like free lunch in economics and it's a matter of time before we have to pay for the government-sponsored lunch that landed on our plates this year. Now all depends on the size of this impending bill.

Sarkari banks shine through the gloom

The stocks of the top public sector banks like State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India, Union Bank of India, among a few others, made a new alltime high on the bourses during the year. Despite this, their valuations are still much lower than their private sector counterparts. Most of the PSU banks have been growing at higher than industry rates for the last three financial years.
Their asset quality is among the best in the industry. Plus they have the added advantage of vast distribution network in the form of branches in rural and semi-urban areas. If the current rally continues, the stocks of these tops PSU Banks will continue to outperform the benchmark indices as they are expected to perform better than their peers. While a few private sector banks like HDFC Bank, Yes Bank, IndusInd Bank and Dhanalakshmi Bank also made a new all time high, their valuations have already factored in the very high growth rates and the chances of further stock appreciation are limited.

The midas touch

Gold prices continued their march towards a new all time high of $1,210 per troy ounce in 2009 due to a weak US dollar and rising investors' interest. The last leg of the rally past $1,100 was, however, initiated by the news of India's central bank buying 200 tonnes of gold in the last quarter. India joined countries like Russia, the Philippines and China that have been consistently adding gold to their official reserves since late 2008. All this buying led to an increase in the gold reserves of world central banks first time in last nine years.

Defensive stocks make moolah

Defensive sectors like FMCG and Pharma typically under-perform the broader market indices during a rally. However, this year, most FMCG and Pharma companies have outperformed the Sensex.

Pointers To The Future

Except the big FMCG daddies like Hindustan Unilever and ITC, most of the leading FMCG companies including Dabur, Nestle India, Marico, Godrej Consumer Products, Emami and smaller players like Procter & Gamble Hygiene & Healthcare have outperformed the Sensex during the year.

It is the same case with most pharma stocks like Dr Reddys Labs, Ranbaxy, Lupin, Cadila Healthcare and Ipca Labs among others that beat the broader market indices this year. Most of these companies from both these sectors have registered strong growth in their revenues and earnings over the last couple of quarters and consequently the investors have cherished their stocks. However, these sectors are unlikely to register a repeat out-performance going ahead as most companies have reached their peak valuations.

It makes a comeback

At the beginning of 2009 only a brave heart could have bet on the IT sector. With ever-fluctuating rupee that led to forex losses and tumbling tech demand from the western economies, the sector's fate was more or less sealed. Yet, 2009 was sort of the year of resurrection for the IT stocks. After betraying investors for two consecutive years, top IT companies offered marketbeating returns on bourses in 2009. The stock price of TCS, the country's largest IT company and HCL Tech, the fourth biggest, nearly trebled. Infosys and Wipro, the second and third in ranking, respectively, rose two-folds.

A recovery in demand from global financial sector and expanding domestic IT space were the major reasons for the outstanding performance. Going ahead, the stocks are less likely to see a major run-up since current valuations reflect most of the positive triggers in near future.

The call drops telecom loses lustre

There are very few leading sectoral indices, at the end of 2009, which have moved southwards, at a time when the broader market indices have moved northwards. And telecom sector is one such beleaguered sector. After consistently outperforming the Sensex for last three years, the one-time darling of investors has grossly under-performed by a whopping 83% Considering this past performance, the investors, at the beginning of the year, wouldn't have expected the sector to log such a poor show. The intense competition among companies and consequently falling tariffs has led to the de-rating of the sector. Going forward, the things can only improve given the incredibly low valuations in the sector right now.

Food for thought

On the backdrop of high commodity prices for major part of 2008, the inflation was expected to be moderate in 2009. Reserve Bank of India had anticipated an inflation of 5% for FY10 while presenting its annual statement in April 09. However, deficient monsoon rains and untimely showers in October and November badly hit kharif crops this year.

There is an estimated 17% drop in kharif food grains this year. All this resulted into escalating food prices. Food inflation has already touched a decade-high level of 20% during the week ended Dec 6. The effect of high inflation is clearly visible in inflation based on CPI (consumer price index) as it is hovering around 15-18% for different categories. Such high consumer inflation is likely to trickle down in the system and overall inflation will gear up. This is likely to push the WPI (wholesale price index) based inflation to a level of 6.5% by end of this year.

Mutual funds sans entry loads

SEBI's complete abolition of entry load from investments in mutual fund schemes has led to a hue and cry among the mutual fund distributors across the country. Many distributors have stopped selling MF schemes altogether while others are recommending their investors insurance plans like ULIPs in lieu of MFs in a bid to earn their livelihood.

In a country where the financial literacy is still quite low, it is difficult to make an investor shell out some extra bucks to pay commission to their distributors, which is now mandated by the regulator. The impact of SEBI ruling is also being felt at the fund houses who are now finding it difficult to attract fresh inflows into their new as well as existing schemes. While the financially literate investor will approve the ruling, for others, it may take some time to overcome the detestation of paying out some commission for want of some advice.

Auto sector vrooms ahead

Every Bollywood script has a hero and story revolves around him and his exploits. The plot was similar in case of the global financial crisis and its Indian episode. Here automobile manufacturers took the centre-stage of the unfolding economic crisis. Auto sales tumbled like nine pins as the financial crisis deepened with the fall of Lehman Brothers, September last year. In segment such as high-end passenger cars and commercial vehicles, off take of new vehicle fell by as much as 50-60%.

This sent a shock wave through the industry. The recovery has however been equally sharp and shocking. In matter of four quarters, the industry moved from an existential crisis to all time high sales, revenues and profitability. Just as automakers were harbingers of the crisis, they become the poster boys of the stock market rally. In the last nine months, most of the auto stocks have trebled or quadrupled in value and have led this bull-run. But does this mean they will, consolidate next year or underperform the broader market? Only time will tell.

Loan rejected? no sweat

noreply@blogger.com (FINVESTguru) — Sun, 27 Dec 2009 18:17:00 +0000

Housing finance companies step in to provide loan to customers turned away by banks.

Almost all banks refused a housing loan to a mid-management executive in Mumbai, who earns an annual salary of Rs 28 lakh. The reason? He had bought a sample flat that the developer had furnished and charged him extra for the amenities. A non-banking finance company (NBFC) came to his rescue.

While the market value of the flat is Rs 1.21 crore, it cost the buyer Rs 1.55 crore, including amenities, stamp duty and registration charge. The borrower's requirement was Rs 1.15 crore. Banks didn't lend as the deal was way above the market value of the house. The NBFC not only provided the required amount, but also disbursed it within two days.

This is not an instance of reckless lending, but a calculated call by the lender. Some banks and NBFCs have carved a niche in the lending business. They cater to the class of borrowers generally not serviced by banks. They go beyond the income statement and tax returns to offer what is called as deviations to the standard banking practices. Most private and public sector banks prefer to do business with salaried people and follow the guidelines set by their managements.

One such lender among the NBFCs is Deutsche Postbank, which walks the extra mile to conduct due diligence. Describing its method of functioning, Anoop Pabby, joint managing director, Deutsche Postbank Home Finance, said, "The strength of our credit evaluation process is quick screening of financials, personal meeting with the customer by our credit managers, a visit to his business premises to verify the nature and depth of his business, taking third-party feedbacks, corroboration of the facts from information available in the public domain, banking habits, existing loan repayments, facilities provided by other banks, audit reports and so on."

Some of these lenders even employ chartered accountants as part of their credit valuation team to take a call on the creditworthiness of a customer.

Following are some of the common areas where a large bank may not fit the borrower's criteria, but these lenders would give a loan if they feel the customer can repay.

100 per cent housing loan: Banks typically lend 75-85 per cent of the agreement value, which includes stamp duty, registration and car park. But if the developer asks for cash, the agreement value falls and affects the quantum of loan one can take.

Some lenders, especially privately-owned NBFCs do realise the prevalence of cash in such deals. They do their own valuation of the property before sanctioning a loan. So, if the agreement value is much below the real price of the house, these lenders provide even 100 per cent finance. The amount of loan in most cases is increased by dividing the loan in two parts a regular housing loan and another one for amenities to provide 100 per cent financing.

Track record: It is a standard practice for all lenders to check a customer's record in the credit information bureau. If the borrower is shown as a defaulter, banks don't lend unless the customer settles the issue with the company that has reported the person as a defaulter. Customers face rejection even if the default is on account of a dispute.

NBFCs such as Deutsche Post lend to customers who can justify the track record and provide supporting documents.

Self-employed: This segment of customers finds it most difficult to get a bank loan. While professionals have difficulties to produce receipts for every transaction to prove their actual income, business owners tend to split earnings among family members for tax purpose. This acts as a hurdle when a self-employed person requires a big-ticket loan.

Banks such as Kotak Mahindra Bank have specialised in lending to this category of customers. The bank goes through various documents to assess the actual income. This includes studying receipts and transactions on bank statements.

In fact, housing finance company HDFC has a product that caters to professionals such as doctors and chartered accountants. "If the customer is a young professional, there are structured repayment options available that provide flexibility and, in turn, a higher loan amount," said the spokesperson of the bank.

One such option from HDFC is a product called Step-up Repayment Facility. This is linked to the customer's expected income growth. Under this facility, the customer will be eligible for a higher loan amount as compared to the regular home loan product and as he would pay lower equated monthly installment (EMI) in initial years, which will rise over the years as the earning capacity improves.

Loan against property: While lending against a property, financial institutions usually provide 50 per cent of the value of the asset. A large bank would first assess the property and then look at the customer's income tax filings. If the EMI is more than the income declared in tax filings, lenders would usually reject the application.

In such cases, a borrower can approach the housing finance company, especially those having a large portfolio of self-employed persons and businessmen. These companies provide 30-40 per cent of loan against the property. They also lend even if a customer does not have income-tax returns to justify his income, provided the borrower can establish that he can pay the EMI.

Source: http://www.smartinvestor.in/pf/pfNewsDetail.php?pg=news&newsid=15717&pgtitle=newsdet

One teases, the other eases

noreply@blogger.com (FINVESTguru) — Sat, 26 Dec 2009 02:32:00 +0000

Teaser and step-up home loans may look similar in the beginning, but they work out differently in the later years

There have been a lot of changes in the Indian loan market. As the slowdown impact fades away, banks and financial institutions are once again battling to attract the attention of potential borrowers. This has led to low-rate loans becoming increasingly popular.

On one hand all big lenders have introduced loans that are fixed for first few years and then align to market rates. At the same time, there is a product that offers payment convenience to borrowers. It is called step-up loans, this product allows customer to pay smaller equated monthly instalments (EMIs) initially and higher in the later years.

TEASER LOANS
As the name suggests, these are loans that look attractive at first glance as the interest rate for the first two-three years are fixed as well as low. But there is an apprehension that it may hurt the borrower when the interest rates align to the market. These are linked to the prime lending rate or the benchmark rate of a bank.

For instance, a 15-year home loan that has 8 per cent rate of interest for the first year and 8.5 per cent for the next two years. Beyond that the rates will be reset to 1 per cent below the prime lending rate (PLR) of the bank.

STEP-UP EMI LOAN
This product involves a situation where the loan is structured in such a way that the EMI is low for the initial period and then will rise. For example, a loan of Rs 11 lakh available for 15 years, where for the first three years, the EMI would be Rs 7,500 a month, and would later rise to Rs 13,000 a month. The loan is structured for people who have the potential to earn more as they progress in their jobs. It works on the presumption that the higher EMI can be afforded at a later stage.

CHECKLIST

Extent of discount in rates

Period of the benefit

Reset clause of the interest rate and other conditions

Prepayment options and charges

Penalties on shifting the loan or total repayment

DIFFERENCES
At first sight, both these loans might look similar but scratch the surface and the differences emerge. In a teaser loan, there is no surety that the loan interest rate and the EMI will rise, depending on the markets. If the overall interest rates continue to remain low, the EMI will not change drastically.

But if the initial rate is very low, then such a situation is unlikely and the rate could rise. For example - If the rate of interest offered on a teaser loan is initially 7 per cent when the prevailing rate is 11 per cent, then there is a very high chance that the rate on conversion will be higher.

A step-up EMI loan, however, is guaranteed to raise the amount that the individual has to pay after the initial time period is over, so there is unlikely to be any unpleasant surprise on the downside, because the benefit is already taken by the low initial monthly payment.

It is also very difficult to plan for a teaser loan, as no one can correctly predict the interest rate movement. Also, higher the time period for which the initial rates are fixed, the greater the uncertainty. On the other hand, when it comes to a step-up EMI loan, adequate planning is possible.

CHOOSING
A step-up EMI loan should be considered only when there is going to be a certain rise in the income of the individual that will enable future payments. A step-up EMI loan is usually suitable when a person is in the initial stage of working life.

When it comes to a teaser loan, the working of the actual rate to be charged after the initial low-rate period is over, is important. A lower spread, as in two per cent below PLR than 1 per cent below PLR, helps. There can also be a choice of this loan when the rate for the first few years is either very low as compared to the prevailing rate or that there is a long period for which the loan will be kept at a lower rate when the prevailing market conditions are in the high interest zone.

Source: http://www.smartinvestor.in/pf/pfNewsDetail.php?pg=news&newsid=15449&pgtitle=newsdet

For investors, 2009 was easy. Now comes 2010

noreply@blogger.com (FINVESTguru) — Sat, 26 Dec 2009 02:17:00 +0000

For some people, investing in 2009 was easy -- just put your money into oversold riskier assets and watch them rise. It looks like 2010 could be a lot more difficult, requiring selection and market timing to bring in the best results.

In early March this year, investors decided that a) the financial system was not going to collapse into a new Great Depression and b) as a result, riskier assets such as stocks and high-yielding bonds had sold off too much.

The gains of 2009 -- as much as 30 percent for world stocks year-to-date, 72 percent since early March -- came in the main from across-the-board buying.

The more sold-off the asset had been, the higher it rose as investors almost indiscriminately stampeded out of what had by then become virtually zero-yielding cash funds in favor of any yield they could find.

It was essentially triggered by authorities making clear they would not let another major bank go under, a la Lehman Brothers, and by central banks pumping liquidity into the system.

Entering the new year, however, a lot of this has changed. Large price rises have eaten up what were seen as historic opportunities and central banks are preparing to haul back the liquidity. Some tight 2009 correlations are already breaking down, leaving investors to work a bit harder for their buck.

"2010 is going to be a year of discrimination with a very long bias towards quality," said Bob Parker, vice chairman of Credit Suisse's asset management arm.

The need for more selective thinking also comes from the state of the global economy, which although improving, is both uneven and fragile. Investors have become more cautious about the investment backdrop as a result, a caution intensified by debt problems in Dubai, Greece, Spain and elsewhere.

"Cyclical tailwinds and structural headwinds," is how William De Vijlder, global chief investment officer of Fortis Investments, described the current investment climate.

Quality please
What this means for equities is that investors are likely to be much more selective in what they buy, even if they do still believe that stocks will rally.

Reuters polls showed on Wednesday that most investors are expecting equities to continue rising next year, although at nothing like the same rate they have been.

A quality pick, Credit Suisse's Parker said, would be a company with low leverage, a high dividend and the expectation of keeping it, free cash flow, and a strong market share also with the ability to keep it.

Wealth manager Banque de Luxembourg has a similar slant, seeing defensives such as utilities attracting attention.

"It makes a lot of sense to go out of things that are very cyclical and to go into things that are more defensive and pay interesting dividends," said Guy Wagner, the bank's chief investment officer.

And as investors get picky about stocks, the same is likely to go for regions and other asset classes.

While emerging markets remain a favourite for many investors in 2010, focus is mainly on fiscally sound countries in Asia, such as China, rather than on, say, eastern Europe.

"(There will be) more differentiation rather than just buying an asset class or region," said Wayne Bowers, chief executive officer for Northern Trust Global Investments' international division.

Northern Trust on Wednesday unveiled a euro zone government inflation-linked bond fund but constructed its benchmark to exclude Greece and Italy, two of the area's weaker elements.

In effect, rather than just go underweight on those bonds, that said the fund simply wanted nothing to do with them.

What if?
The big risk to this "be picky" scenario is that the assumptions about 2010's economic performance turn out to be false.

If -- and it is a big if -- global growth were to take off sharply, riskier assets would most likely continue the climb that they have seen this year.

True, such growth would bring with it earlier interest rates hikes and a quicker end to liquidity-pumping exercises by central banks.

But the reasons would be positive, and the resulting sell off in government bonds would drive money into a broad swathe of equities and the like.

It is not expected to happen. But then again, who predicted the booming risk market of 2009 this time last year?

Source : Reuters : http://www.moneycontrol.com/news/economy/for-investors-2009-was-easy-now-comes-2010_431409.html

2010: Key political risks facing Asian mkts

noreply@blogger.com (FINVESTguru) — Sat, 26 Dec 2009 02:15:00 +0000

Asia weathered the economic storms of 2009 remarkably well, but the performance of regional markets next year depends heavily on whether the continent can steer a course through some treacherous political risks.

The difficult relationship between Washington and Beijing

China will face intensifying pressure in 2010 to let the yuan appreciate. But Beijing will not want to put economic growth at risk by letting the currency rise too quickly, and does not appreciate being told what to do by Washington or anyone else.

In the United States, meanwhile, yuan weakness is regarded as a protectionist policy that threatens the U.S. recovery.

Washington may retaliate by imposing more trade restrictions, like the tariffs on Chinese tyres announced in September, sparking a tit-for-tat trade war. And there is also the danger that Beijing's backing of regimes that Washington finds unpalatable flares up into a political confrontation.

Most analysts say Washington and Beijing are painfully aware of the risks and would step back from the brink before any dispute threatened the global economy. But the two countries have yet to find a way to communicate comfortably as partners. The risk of a misunderstanding or sudden chill in relations is real.

What to watch for:

-- The battle over the yuan. Will Beijing let it appreciate, and if not, will Washington throw a tantrum?

-- Protectionism and trade tariffs. If President Barack Obama imposes more tariffs, under pressure from Congress and domestic industry, expect sparks to fly.

-- Any disputes arising from China's dealings with North Korea, Myanmar, Iran and other "rogue states".

Post-stimulus hangover: Asset bubbles and capital controls

Asia is leading the world out of recession, which means Asian governments are among the first to confront a key policy problem -- how to time their exit from the vast stimulus packages that helped keep them afloat during the global economic crisis.

If governments withdraw stimulus too soon, they could topple back into stagnation. And if China falls into this trap, the impact on the global economy could be dire.

But keep policy too loose for too long and they risk not just resurgent inflation but also potentially catastrophic asset price bubbles, as plentiful credit sparks a scramble for property and equities. The danger of China's economy being derailed by a burst property bubble is a key concern for 2010.

Another risk for investors is that countries trying to prevent bubbles and control inflows of "hot money" tighten capital controls and try to lock in foreign cash.

Two more political issues complicate the dilemma.

First, unless governments coordinate their exit plans, there is a major risk of unexpected spillover effects. But the crisis demonstrated the lack of global governance bodies able to handle international policy coordination, and while G20 members have promised to move in step, it is more likely their stimulus exit will be dictated by national interest alone.

Second, disagreements could also erupt within countries, between governments focused on safeguarding growth and central banks fearful of inflation and bubbles. That could lead to bad decisions, and make policy hard to forecast.

What to watch for:

-- All eyes are on China, key engine of global growth since the financial crisis hit. Can it steer a course through the policy perils? If it stumbles, the tremors will be global.

-- Much of Asia faces property bubble risks, with Hong Kong and Singapore particularly in focus.

-- India and Indonesia are two key countries where capital controls could be tightened, spooking investors.

-- The next G20 summits are in June in Canada and November in South Korea. Coordination of exit strategy will be a key theme.

-- Disagreements between the government and central bank are already an issue in Japan. South Korea and India, among others, may also see policy friction in 2010.

Thorny political transitions

In 2009, Asia smoothly negotiated several potentially tricky elections and transitions of power, although the victory of the Democratic Party in Japan's elections after decades in opposition produced some market volatility. Things may be tougher in 2010.

Australian Prime Minister Kevin Rudd is widely expected to win another term, with the only question being the timing of the election. But elections in the Philippines and Sri Lanka are harder to call.

Moreover, two important Asian heads of state are ailing and there is no certainty who or what will come after them.

Thailand's 82-year-old King Bhumibol Adulyadej has been in hospital since September, another complication in the long-running political crisis that has riven the country. Many analysts expect instability to get even worse after his reign ends -- giving Thai markets a rough ride. But most say there is little risk of contagion in other markets.

If North Korean leader Kim Jong-il dies in 2010, by contrast, the tremors will be felt in South Korea, Japan and beyond.

Many analysts say Kim's death could herald the collapse of the regime in Pyongyang, leading possibly to prolonged civil war in North Korea, aggressive moves against the South, or the sudden reunification of the Korean peninsula. In all of these cases, the likely market reaction would be strongly negative.

What to watch for:

-- The health of North Korea's Kim and Thailand's king will be closely watched, and could unsettle markets.

-- Populist pre-election pledges in Sri Lanka and the Philippines may result in economic problems later in the year.

Afpak tremors start to trouble investors

Long-running instability and widespread violence in Afghanistan and Pakistan rarely register on the radar screen of investors. But that may change in 2010.

Firstly, with Obama facing mid-term polls in November, and with effective defeat in the war in Afghanistan still possible in 2010, his strategy may become a central campaign issue and could even cost him a majority in the House of Representatives if things go badly.

Secondly, the decisive victory of the Congress party in India's 2009 elections was another good-news story for markets that could be threatened if militants based in Pakistan provoke a confrontation again, following the bloody 2008 Mumbai attacks.

Analysts expect al Qaeda and its allies to again try to spark conflict between the nuclear-armed neighbours. And Pakistan's weak government, under threat on several fronts, may have its own reasons to focus popular anger on India.

What to watch for:

-- Evidence of whether Obama's troop surge is making a difference, or whether his Afghan policy comes to be regarded as an expensive failure. In the latter scenario, he will be highly vulnerable going into the mid-term elections.

-- The state of India-Pakistan relations, and the risk of conflict if Pakistan-based militants once again launch a major attack on Indian soil.

Social unrest packs a belated punch

Many analysts predicted that the global economic crisis would unleash mass unrest in several countries around the world, with the potential to topple governments. They were mostly wrong. In particular, forecasts that China's leadership could be shaken by serious unrest proved to be way off the mark.

But unemployment is a lagging indicator. Even as the global economy moves out of crisis, many countries will see jobless numbers and social hardship continuing to rise.

Another spark that could ignite unrest would be inflation in food and fuel prices. The global crisis put the brakes on a dramatic surge in commodity prices that is likely to resume as global growth resumes.

What to watch for:

-- The doomsday scenario for markets would be mass unrest across China that threatens to topple the government. Most analysts see the possibility of this as extremely low in 2010, but any upsurge in unrest in China would rattle investors.

-- India, Indonesia, Thailand and Vietnam are other key emerging markets where unrest could hamper economic reform and dent markets if instability flares in 2010.

Source : Reuters : http://www.moneycontrol.com/news/world-news/2010-key-political-risks-facing-asian-mkts_432016.html

Flashback: How the markets fared in 2009

noreply@blogger.com (FINVESTguru) — Sat, 26 Dec 2009 01:58:00 +0000

2009 will go down in history as one of the best for Indian equity markets, after 1993 and 1999this year, they have emerged among the top-four performing markets in the world. CNBC-TV18's Varinder Bansal and Vidhi Godiawala report.

It was the calm after the storm, and a much-needed one at that. After the carnage witnessed in 2008, 2009 saw the global equity markets calming down and the Indian markets made the most of this, becoming one of the top four performers in the world.

Foreign institutional investors played their part. They pumped in nearly USD 17 billion over the year. Of this, nearly USD 7 billion came from QIPs, USD 3.3 billion came from IPOs, and over USD 3 billion came from ADRs and GDRs.

Helping the India markets along were sectors like metals, automobiles, and technology.

Girish Paranjpe, ED and Joint CEO, Wipro, said, "We have demonstrated that we are a very resilient sector and we are able to manage demand fluctuations and manage margins very well. That should be a matter of great satisfaction for investors in this sector."

The tech index rose 130%, and the auto index rose 200%, but both these performance were eclipsed by the metals index, which surged 230% over the year.

Jindal Steel & Power led the way, gaining nearly 380% followed by Sterlite, which rose 225%, SAIL which rose 205%, Hindalco, which rose 200%, and Tata Steel which gained 180%.

And 2010 should be a good year as well.

Naveen Jindal, Executive VC and MD, JSPL, said, "There is going to be huge demand for steel as per capita steel consumption is still quite low in Indiaits almost 14th of Chinese steel consumption. Steel prices are depressed as of now but I feel we are concentrating more on reducing our cost of production also but it is a temporary phase."

The banking sector also bounced back smartly from 2008's drubbing. Most banking stocks gained around 100% each in 2009 but walking away with the honours are IndusInd Bank with a 270% rise, Central Bank, up 240%, and Yes Bank, with a 233% rise.

Yes Bank says this has been on the back of a strong business performance.

Rana Kapoor, Founder, MD and CEO, Yes Bank, said, "We have been deriving approximately 48-50% from non interest income sources which are fairly well diversified across treasury, across advisory, transactional banking and branch banking."

However, not all sectors had a ball. Some heavyweights like HUL, Idea, and DLF posted just modest gains. The telecom sector took the worst beating, as tariff wars kept investors away.

Over the year, Reliance Communications fell 20%, and Bharti Airtel was down 10%.

Akhil Gupta, MD, Bharti Enterprises, said, "On telecom, surely the price wars have some pressure on the tariffs but what we mean is that they must be sustainable tariffs for everybody to grow in this business."

CEOs are confident that 2010 will be a good year, after all, they have survived the upheavals in late-2008, and the uncertainty of 2009. But analysts are not so gung-ho. They say that while 2009 has given strong returns to the brave, 2010 may not see a sustained bull run, as markets consolidate.

Source: CNBC-TV18 : http://www.moneycontrol.com/news/cnbc-tv18-analyst-markets/indian-markets-boom2009-an-analysis_432585.html

7 of top 10 stocks slip off charts in 10 years

noreply@blogger.com (FINVESTguru) — Sat, 26 Dec 2009 01:53:00 +0000

Top stocks by market value don't ensure best returns and neither provide a stamp of safety. Even the principal investment in them is not guaranteed.

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The first decade of the millennium has once again proved that big is not always beautiful when it comes to stock purchases and every investment fad takes its toll.

Between 2000 and 2009, seven of the top 10 companies have fallen off the list. Also, many darlings of yesteryears such as Pentamedia Graphics, DSQ Software and Silverline have vanished from portfolios.

New listings such as mobile phone leader Bharti Airtel and government-owned utility NTPC have caught the investors' fancy, while companies such as Wipro, Hindustan Unilever and Tata Communications - formerly Videsh Sanchar Nigam - are trailing in rankings, an ETIG study shows.

"The number of stocks to choose from has increased," says Hitesh Agarwal, head of research at Angel Broking. "It has also attracted more money into the system."

Reliance Industries (RIL), run by Mukesh Ambani, Infosys Technologies, mentored by NR Narayana Murthy, and the government-owned ONGC are the three that have managed to weather storms in the decade created by the burst of the dotcom bubble, political turbulence, and the credit squeeze after Lehman Brothers collapsed in 2008.

The biggest wealth creator among the three firms that figure in the top 10 in both 2000 and 2009 is RIL, which topped the chart with 30% compound annual growth rate (CAGR) in market value over 10 years. The actual market value added by RIL is a phenomenal Rs 3.1 lakh crore, or around $66 billion, and Rs 2.2 lakh crore by ONGC.

The stock performances were not in isolation, but were accompanied by an unprecedented growth in the real economy where manufacturing boomed, services flourished and consumers gobbled up everything from mobile phones to BMW cars.

During the past decade, the Indian economy tripled in size while the combined value of all companies on BSE disproportionately rose over six-fold to around Rs 57 lakh crore.

The star of the decade was the once ugly duckling, the state-owned power equipment maker Bharat Heavy Electricals, as the latest infrastructure fad set in a few years ago, which is still running its course.

"The sectors, which are likely to perform in the next 4-5 years can be infrastructure-related firms," says Tarun Sisodia, director & head of research at Anand Rathi Financial Services. "As government spending is likely to be allocated more for infrastructure development, this will have a positive impact on companies." BHEL's market value rose 35% CAGR in the decade, as its market value rose almost 20 times from just Rs 5,500 crore in January 2000. This has prompted many firms with a bit of infrastructure in their name raise millions of dollars in IPOs without any business running.

In 2000, a year before the dotcom crash, more than a quarter of the top 25 companies by market value were technology companies, followed by oil & gas.

Currently, metal & mining firms, once shunned by fund managers as "just a commodity business", dominate the top 25 list of companies by market cap.

Will the fad for infrastructure companies face the same fate as that of technology and there could be some repeat of big companies in the next decade too?

"Although the number of stocks have increased manifold, institutions still prefer the top few companies," says Ajay Parmar, head of institutional equities at Emkay Global Financial Services.

Source: 26 Dec 2009, 0700 hrs IST, Shikha Sharma, ET Bureau

Stocks trader's favoured the most in 2009: An analysis

noreply@blogger.com (FINVESTguru) — Mon, 21 Dec 2009 17:45:00 +0000

Some stocks have had a great run in 2009. They have attracted traders and investors for the year round. CNBC-TV18's Varinder Bansal reports,

These stocks are only punters delight the way they have moved for the entire year with gains of anywhere between 2,000%. The marketcap of these stocks are well above most of the stocks we talk on the channel.

Kwality Dairy: Biggest winner of 2009?

Kwality Diary, a company with a market cap of Rs 2,000 crore, has gained nearly 2,000% in 2009. Looking at the one-year chart, the stock was at a price of Rs 5.5. It went to as high as Rs 1,360 and then there was a stock spilt from 10 to 1 and now the stock is trading around Rs 100.

On the financials front, FY09 the profit after tax (PAT) of this company was around Rs 10 crore and FY08 the PAT was nearly Rs 4.5 crore. So the company with market cap of Rs 2,000 crore is having a PAT of nearly Rs 10 crore.

The promoter holding in this company is interesting with four promoters and 32 individuals together hold nearly 93.5% stake in the security. The free float in the company is very less and that is why most of the stocks tend to react because of cornered shares in the public. Also, the existing promoters of this company bought this company in 2003 at the price of only Rs 3 crore and now see the way the stock has moved up. The company is only engaged in the diary business.

Gee Kay Finance and Leasing Co: Another trader's delight?

This company has a market cap of nearly Rs 4,000 crore, which is even higher than IndusInd bank or Dena Bank or most of the PSU banks. The stock has gained nearly 1,800% and again in this case we have seen there was a stock split in the month of December and the stock started with a price of nearly Rs 4 and went to as high as Rs 560 and now after the stock split is trading at around Rs 80.

The volumes have been good in this stock. In the last 4 years for this company there is no profit for this company. The PAT of 2009 there was a loss of Rs 29 lakh and 2008 it was a loss of nearly Rs 4 lakh.

Promoter holding will be very interesting because the promoter holding in this company is only 0.5% and there are 26 individuals who hold nearly 90.86% equity in this company. So again you have distorted equity, which is spread only in 26-27 people and the rest 7-8% is with the public.

These are the few cases where you have seen huge gains but this is all punters delight, no fundamentals which are attached to both the shares.

Other outperformers of 2009:

Company	Dec 31, '08	2009 Chg
Auro Pharma	Rs 168	429%
Mcleod Russel	Rs 49	427%
JSW Holdings	Rs 301	427%
Hexaware Tech	Rs 21	348%
Orbit Corp	Rs 62	339%
Uttam Galva	Rs 27	334%
Polaris Software	Rs 43	326%
HOEC	Rs 66	312%
Havells India	Rs 122	309%
Jindal Saw	Rs 44	307%
Deccan Chron	Rs 44	247%

Published on Mon, Dec 21, 2009 at 17:13 | Updated at Mon, Dec 21, 2009 at 18:55 | Source : CNBC-TV18