ELSS better investment option than PPF, NSC: Crisil

Source - Moneycontrol

Investments in an Equity-Linked Savings Scheme (ELSS) of a mutual fund have yielded higher returns compared to other instruments like PPF and NSC in the last few years, a report by Crisil has said.

"Our analysis shows that ELSS gave 26% and 22% annualised returns over three and 10 years, respectively, vis-a-vis 8-9% offered by traditional tax saving investment products such as public provident fund (PPF) and national savings certificates (NSC)," Crisil said.

Crisil added that interest on employees provident fund (EPF) for 2011-12 was slashed to 8.25% from 9.5% in the previous year and thus ELSS can act as a strong alternative to investors.

Though the traditional debt products are considered to be relatively safer bet as they are not affected by volatility, they are unable to generate higher inflation-adjusted returns in the long run.

The PPF accounts fetched 8.12% over the last 10 years and in the similar period, the NSC gave an interest of 9.10%. The average inflation over the past 10 years stood at 6.05%.

"ELSS is not only an attractive option to save tax, but also helps create wealth over the long run. ELSS as a category has outperformed the Nifty 500 across three and 10 years. With average inflation around 7% over the past three years, top Crisil-ranked ELSS gave an inflation adjusted return of 14%, which is significantly higher than returns offered by other tax saving products," Crisil's senior director Mukesh Agarwal said.

The rating agency, however, cautioned that the ELSS investment requires some amount of market risk and had to cherry pick those schemes which have performed consistently well.

"Since investments in ELSS are subject to market risks, investors must take into consideration their age and risk-taking abilities. The investment horizon should be more than five years for higher inflation-adjusted returns.

Further, investors must choose funds that have performed well both in good and bad times," Crisil head for Funds and Fixed Income Research Jiju Vidyadharan said.

It said ELSS is not eligible for tax benefits under the DTC, but since the implementation of the new tax regime has been postponed, investors can park their funds in these equity schemes for now.

Era of Tax Saving Infra bond is over

Source – Team CrawFin/ Harshal Jawale, CFP^CM

Just recently Indian individuals realized the importance of option of tax saving through infra bonds over and above INR 1 Lakh u/s 80C. After many failed attempts by many infra companies in the past to complete the subscription, investors were starting to invest into Tax saving Infra bonds. But budget 2012 played a spoilsport to this instrument. Section 80CCF under which investor used to claim INR 20,000 extra deduction is no more available from April 1, 2012. There is no mention in Finance Bill 2012 or not even in DTC which may be introduced from April 1, 2013.

After deletion of this clause there will be INR 6180 loss of tax for 30% tax slab and INR 4120 for 20 % slab and INR 2060 loss for 10% slab. As individual tax payer it reduces his/her ability to avail investment linked deductions from R1.2 lakh to R1 lakh.

Read - I-Strategy, a no brainer idea that helps you make wise investments only on http://crawfin.blogspot.in/2011/11/i-strategy-no-brainer-investment-idea.html#comment-form

Media & Stock broker– your friend or enemy

Source – Bullsbook.com

The era of news channels, news papers, and news magazines is gone. Now is the time of views channels, views papers & views magazines! Yes, that’s the case wherever we go. Not just in India, but in any corner in the world.

Let’s understand the basic business model of media. It’s a simple equation. More viewership for TV channels & more readership for newspapers, magazines & websites; means more advertisements at higher rates. More the viewership/readership, higher the rates of advertising & more is the number of advertisers. Now, to increase viewership/readership; they need to have a lot of fresh content. Fresh like a fish! Else, people will simply unlike it. Now there are two things, either the content has to be originally fresh or they have to make it look like fresh. This is done in the name of breaking news, exclusive stories, rumours/insider information from sources etc. In simple words, they need to keep you busy watching/reading their content for maximum possible time; Irrespective of your requirements & needs. And one must admit, media has been doing it successfully. After all, smart business people are there to work for them! Truly, we can call them business channels, business magazines & business newspapers! They are simply doing their business, and making profits.

On this drive to increase or maintain their following, media needs to cater to maximum possible segments. Just like a big mall or shopping complex, where you get everything. But do you actually need to buy everything every time? No. You just buy what you want and get out of the building. But it’s the need of that mall or shopping complex to have everything available for sale, since they need to serve not just you but everyone else. Same is the case here. Today’s business channels, newspapers, websites, magazines need to deliver everyone. A long term investor, intraday trader, short term trader, futures & options traders, commodity trader, currency trader, economists, businessmen, students, car & bike lovers, sports lovers; everyone gets what they want here. Even if you want a trading/investment advice, mutual fund advice, real estate advice, advice on which car you should buy; yes they have it. Just like a movie channel which has everything for everyone, right from comedy, drama, tragedy to science fiction, cartoon and action! This is how business channels get the content to run the show all day & print media, websites, and magazines to make all their pages full.

Sometimes, parties/individual/companies with vested interest will join hands with media or use media to spread rumours, to intentionally leak the developments to get advantage of stock price fluctuations due to public participation, to propagate specific agenda etc. So, think before you act on any news. Not every piece of information is genuine; there may be a hidden motive. It has happened in the past that, many managements floated bullish stories about their business prospects in media through inflated reports, independent analysts etc., and investors have paid heavy price for acting on them.

The funniest thing most people try to do is to REACT to the news flashing on the TV screens or appearing on other mediums. Common sense tells us that, how can you benefit from an exclusive information which is being watched or read by millions of people at the same time? By the time this exclusive or insider information reaches you, everyone else knows it & many has already traded on it.

No one can deny the fact that, some of the most respected people in the financial world give their views through media. These people are independent investors, businessmen & entrepreneurs. And their views are worth to be taken into consideration. But there are many others who keep on popping up every hour & every day. Giving views on number of stocks, sectors & economies! And everyone has their own theories, propaganda’s, targets & logics. Majority of these experts, independent analysts are there for two reasons.  First is to represent their company in media & let it’s presence be felt in the markets. And the second type of experts, i.e. independent analysts is there to advertise or to spread awareness about the services they provide.

Talking about anchors on business channels & editors of print/digital media, we see no difference between them & cricket commentators. It’s their job to sound excited & surprised on everything! If a player hits the ball for a six, it’s their job to shout; “oh! What a shot”. And if the player gets bowled out on the very next ball; “oh! What a ball.” They simply don’t know what is going to be the result of the cricket match, but they have to speak till it’s not over. Ultimately, it’s the players on the field who need to play the game. Players don’t even need to know what the commentators are saying by sitting in their air conditioned press box. Same way, YOU are the player here in this game of stock markets. You don’t need to listen to commentators & many other experts’ opinion. You have to develop your own technique & strategies to play well and win the game.

The point to be taken here is, media is absolutely necessary for each one of us to remain updated about the current developments. You should be selective, and should not believe everything blindly. Take what you want, and leave aside what is un-necessary. After all it’s you who has to think for yourself. No one is going to do it for you. It is important to get the news & not the views.

Media is doing their business & they are doing it excellently. They have nothing to do with your success or failure, and why should they? It’s time to mind your own business with equal excellence. There is a simple way of doing it. Keep the business channels mute during market hours & read the pink papers after the market closes!

Same is the case with stock brokers. They need to cater needs of every individual. So they have to offer various services & solutions. It’s a simple business model again. More you trade & leverage, more profits for your stock broker. No wonder, they manage to find out one multi-bagger stock everyday, many hot trading ideas every hour. It’s their job to provide fresh food to whoever walks in! And to communicate these hot tips, they have a strong network of so called graduate/postgraduate relationship managers, dealers (we call them volume managers) who have no idea about what’s happening in the market. Whenever you speak to them, “The market is at a very important technical level / crucial level and anything can happen” is the standard reply you will probably get!

If a person buys shares worth 1 lac rupees, holds them for 3 years and sells those shares at 10 lac rupees; the broker makes very little money. But if you are an intraday or short term trader, you trade with that 1 lac rupees with all the possible leverage and even if you don’t make any money or lose some money after making several trades; the broker earns more. Then you are a good client for them!

One thing we need to understand here is, stock brokers job is to do broking and not of doing research or investment advice. But due to their business requirement, they need to have this department. It is obvious, they have to maintain a balance between your & their profitability.

Next time your stock broker, dealer or relationship managers gives you a hot tip, question it. Analyze it and only then make a decision. After all, the trade or investment is going to be executed by using YOUR money, not theirs.

The process of buying & selling shares is transparent like never before. Today’s stock broking is a new age broking with lot of handful tools & services at your doorstep. Many stock brokers provide the tools to analyze the markets & stocks, guides to investing on their websites, journals etc. And investors should make good use of them.

Both media & stock brokers have their own roles to play to make profits for themselves. Not everything they do is helpful or harmful for you. If you think for yourself and act smartly, you can be friends with them and use them for your benefit. If not, you may end up in hurting your financial health! Just like many investors have done it in the past, by blindly following the ‘Experts’ in media.

The choice is yours!!!

Buying Property? You Have to Pay More Now...

Source – Moneycontrol

If you are among the many home buyers looking for a property to purchase right now, there is a recent RBI directive that you should be aware of, that will impact your cash flows management.

As per one of the latest notifications by the RBI to banks, stamp duty, registration charges and taxes such as VAT and Service Tax are to be excluded from property value when considering how much of a loan to give the consumer.

Let's see what this means:

What is Stamp Duty?

Stamp Duty is nothing but a tax levied on documents. Different levels of stamp duty are payable on different forms of documentation. If a document is stamped, it is considered legalized and can be used in the future as having evidentiary value in Court.

In Maharashtra, stamp duty is 5% of property value.

Registration charges are 1%. Also consider VAT and Service Tax.

On what properties is service tax applicable? What is the rate of service tax?

A builder or developer is also now liable to pay service tax if any payments are made by buyers, before the completion certificate is given. This cost is also passed on to buyers.

If payments are made after the completion certificate is given, then no service tax is payable.

Hence if a property is under construction and you as a buyer pay a booking amount, this is considered payment towards sale consideration before completion certificate is given, and hence you will be liable to pay service tax at the rate of 10.30% of 25% of the sale value i.e. 2.575% of sale value.

What is the rationale behind the RBI notification?

In December 2010, the RBI indicated to commercials banks that they should not lend more than 80% of property value in case of properties worth more than Rs. 20 lakh, and not more than 90% for properties worth less than Rs. 20 lakhs. This was put in place to keep a check on what the RBI thought was excessive lending to the real estate sector.

On Feb 3rd this year, this notification came about because it was seen that in order to artificially inflate the property value so as to give bigger loans, stamp duty, registration and other charges were included as property value, which technically they are not. Adding these charges overstated property values,

How does the RBI notification impact you?

Earlier, when you applied for a home loan, certain amounts were included in the property value on your loan application, these included stamp duty, registration charges, VAT and other government taxes.

Now, this is all excluded. This means that you have to pay stamp duty, registration charges, VAT and in the case of under construction properties service tax too, out of your own pocket.

So while earlier a bank would give you up to 80% of your applied amount as a loan, depending on your home loan eligibility, now you will get about 70 to 75% as a loan, and will have to put up 25 to 30% of the total value as down-payment, stamp duty, registration and other charges.

So here, your cash flow management can become key.

How do banks decide how much loan to give you?

A bank decides your home loan eligibility based on quite a few factors.

They will consider your age, whether you are salaried or a business person, how much your monthly income post tax is, your monthly expenses, your family, your spouse's income if any, and most importantly your existing liabilities.

The idea is to assess your surplus monthly income to see how much of a home loan you can service without stretching yourself. They want to know basically whether or not you are a safe borrower for them.

Let's see how this impacts you with an example.

Suppose our favourite fictional character Mr. Shah wants to buy a house.

He has identified an under-construction property worth Rs. 50 lakhs.

Property Value:                  Rs. 50 lakhs

Stamp Duty @ 5%:            Rs. 2.50 lakhs

Registration Charge @ 1%: Rs.  0.5 lakhs

VAT @ 1%:                       Rs. 0.5 lakhs

Service Tax @ 2.575%:      Rs. 128,750

The total value to be paid will be Rs. 54,78,750.

Before the RBI notification, a bank would give Mr. Shah up to 80% of this value as a home loan, and Mr. Shah would put up 20% of the value on his own. This means Mr. Shah has to put up Rs. 10,85,750 as down-payment.

After the RBI notification, all these charges are excluded from loan amount.

The loan will be only up to 80% of the property value, excluding stamp duty, registration charges, VAT, service tax and other charges.

So the bank will offer Rs. 40 lakhs as a loan.

The remaining Rs. 14,78,750 will have to be paid by Mr. Shah.

Conclusion

It looks like this change is here to stay. The only way for you as a buyer to move, if you definitely want to buy a property, is forward. From a financial planning point of view, be sure to have your down-payment ready, taking into consideration the additional charges. You can build up your mutual fund portfolio to plan for your down payment, if it is a few years down the line.

Remember, since you are now taking a home loan for a smaller amount, your EMIs will also be lower, so think of that as a silver lining to your future cash flows.

Also keep in mind the cardinal rule when taking on a major liability: have adequate term insurance . This way in case of any unfortunate event, the loan will not devolve on to your dependents.

Do you Know - Goverment companies are offering tax free bonds that saves tax on interest earned. Effective yield above 11% pa, excellent option to park large cash with safety and high yield. Read more only on http://crawfin.blogspot.in/2011/12/nhai-pfc-tax-free-bonds.html