Why one should file tax return?

Why one should file tax return?

Team Crawfin/ Harshal Jawale, CFP^CM

We as financial advisors frequently come across investors who feel filling tax returns is not necessary since taxes are already paid by the employer. We here discuss why it is important to file your tax returns every year without fail.

1.       Birth of TDS and its role in tax filling

TDS meaning tax deducted at source was introduced so that taxman can get each and every entry of your income; from employer for salary or from bank in respect of interest income. Today TDS is deducted from every income at a rate of 10% and this tax is paid to taxman on behalf of you while actual tax liability (rate ranging from NIL to 30%) is left to be assessed for you. One may view his tax credits from form 26AS and confirm tax payment made by employer or bank. Hence note every income where TDS is deducted is already been notified to taxman.

2.       Penalty on late tax filling

In the current year previous year is 2011-12, assessment year is 2012-13 and it ends on 31/03/2013. There is no liability for late filing of income tax return up to 31.03.2013 and after that assessing officer (AO) can impose a penalty of 5000, and that is also his power which he may or may not exercise after giving due hearing to the assessee. If there is tax due after deducting advance tax, TDS and self assessment tax then interest will be applicable @1% per month.

3.       Loss on Tax Refund amount

An individual is expected to maintain records of income for 7 years by the tax department. Let us say if one has not filled tax return for this year but in next year if he faces a situation where tax is cut more than estimated and he seeks tax refund. Please note in such a case assessing officer will slap a notice first to file this year tax return with penalty and only then take the case of next year refund in hand. One may expect such notice for any of the 7 years before this year irrespective of refund-like issue.

4.       Re-assessment of old tax filling

The Income Tax Officer (ITO) has the power to re-assess / reopen cases where he believes that income has escaped assessment. Such power is vested with the ITO up to 7 years from the end of the financial year subject to certain income criteria. This means that even if you have not included certain income in a particular year, the ITO could possibly re-open your case & get you to pay the tax on the same in any future years. The ITO is empowered to levy a penalty on you, which could be up to 3 times the tax that was evaded by such concealment of income.

5.       ITR – V acknowledgment of tax filling

It is one of the pre-requisite documents for passing of loan from bank or while completing employment related visa formalities.

“Wealthy Investments need Healthy Methods”

Investing in Fixed Deposits - Banks

Investing in Fixed Deposits - Banks

Source - Team Crawfin/ Harshal Jawale, CFP^CM

 

Most investors today are refraining to invest into equities and are looking to increase exposure to fixed deposits. Though it is sensible to lock in surplus funds at higher interest rate which may be just peaking out, here we lists few things that you must know before investing into fixed income options –

1. Fixed deposits are not completely safe

Before this recession investors used to think that fixed deposits are the safest option. Banks all over the world of all sizes when forced to shut down, we realized that even FDs are not safe. In fact when banks go bust we may even loose principal amount (forget returns).  In India we may not have faced such situation (thanks to RBI) except some co-operative banks but then such situation always come as a surprise. We also have Deposit Insurance and Credit Guarantee Corporation (DICGC) that insures deposits of up to Rs 1 lakh per customer across all branches of a particular bank.

2. Premature withdrawal attracts penalty

We often tend to book FD for higher duration because it offers 25-50 bps (0.25%-0.5%) extra. But we also need to note that if we happen to break FD before maturity then bank usually slap 100 bps penalty lowering our effective return. So most advisors recommend us to book FD for shorter duration and then renew. We disagree with this, as it may sound fit in theory but in practice it doesn’t work. We always recommend our investors to book FD for 3-5 years (tenure that offer highest interest rate). This is a tenure where usually investor has clear idea of his fund requirement plus we often seen that money just lies into saving account for many months. Instead we believe it is better to book FD for higher duration and then be ready to break FD if need arises. This also ensures higher interest rate earned which may not be available at the time of renewal.

3. TDS is just an interim tax

As per present income tax guidelines, banks are required to deduct tax at source (TDS) on deposits if the total interest earned on all your fixed deposits in a bank is more than Rs.10,000 in a financial year. However, the depositors can claim the credit for such TDS in their income tax returns.

In case of resident individual and HUF, for a payments upto Rs. 10 lacs, TDS is  deducted at a rate of 10.3% (including education cess). But this is not the complete tax liability against the returns earned. We need to include this interest income into our total income and pay tax according to our tax bracket. So if you fall in 30% tax bracket i.e. total income above INR 10 lakh/pa then you must pay remaining 20% (tax liability-TDS) tax amount before tax filling every year.

4.       Form 15G & 15H

The form 15G and 15H are submitted to banks by depositors who DO NOT want TDS be deducted from their interest earned on fixed deposits.  A person who is below 65 years can file the Form 15 G. In order to be eligible to furnish Form 15G, the non-senior citizen investor needs to fulfill the following two conditions:

§  The final tax on his estimated total income computed as per the provisions of the Income Tax Act should be nil; and

§  The aggregate of the interest etc. received during the financial year should not exceed the basic exemption slab

A person of 65 years or more is eligible to file Form 15 H This form can be submitted by senior citizen only if tax on estimated income of the senior citizen is NIL.

5.       Flexi Fixed Deposit

Flexi-deposits are similar to savings accounts. The only difference is that on the basis of your regular cash needs, you could set a limit and instruct the bank to transfer the balance of your idle money to the term deposit.

This may be the best option to park funds as it provides liquidity plus term deposit interest rate. But they fail to realize that the term deposit rate which never shown clearly by the banks is actually rate for 90 days which is often 5%.  According to us it is still a good product but only for short term where liquidity is preferred over return. This cannot be replacement to fixed deposit.

          “Wealthy Investment needs Healthy Methods”

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

BSE - Greenex

Source – Business Today

The country's premier stock exchange BSE on Wednesday launched 'BSE-Greenex', the first environmental friendly equity index, which will enable investors take more informed decisions in the green theme of India.

BSE in association with gTrade (supported by GIZ promoted by Germany, Observer Research Foundation and IIM Ahmedabad) has constructed BSE-Greenex, designed specifically to promote green investing, with emphasis on financial performance and long-term viability of companies. It is based upon purely quantitative and objective performance signals to assess carbon performance.

BSE-Greenex includes top 20 companies based on Green House Gas Numbers, Free Float Market capitalisation and turnover. These companies include Tata Steel, SBI, L&T, ICICI Bank, Tata Motors, Sun Pharmaceuticals, NTPC, Dr Reddy's Labs, HDFC, Bharat Heavy Electricals, GAIL, Hindustan Unilever, Cipla, Sterlite Industries, Tata Power, Ambuja Cements, Lupin, DLF, Glaxosmithkline and Reliance Infrastructure.

Team CrawFin/ Harshal Jawale, CFP

Other Index details ---

Launched – 22 Feb, 2012

Launch Price – 1500

Current Market Price – 1475 (as on 23^rd Feb)

P/E – 18.9

P/B – 2.9

Turnover – above 200 Crore daily

Since there is no other incentive to companies to be a part of this index, I do not expect any price improvement in the stock prices or index. Investment is advisable only if one wish to purchase this basket of stocks instead of Sensex or Nifty or any other basket. Launch of green theme by MF houses may attract investments into these stocks thereby resulting price improvement in future.

“Wealthy Investment needs Healthy Methods”

MCX IPO – Worth a bet

Team CrawFin/ Harshal Jawale, CFP^CM

The Multi Commodity Exchange (MCX), India's biggest commodity exchange by turnover is entering the market with an offer for sell from existing investors like FTIL, SBI, Corp Bank etc. Incorporated in 2003, MCX is the largest among these and have above 80% of the market share of the Indian commodity futures exchange industry. It allows trading in more than 50 commodities across sectors like bullion, metals, energy, weather, and agricultural products. MCX has more than 2,107 registered members operating through over 180,000 trader work stations in over 1,139 cities across India. MCX emerged as the 5th largest exchange in the world.

Issue Details –

Open – Feb 22, 2012 – Feb 24, 2012

Price band – INR 860 – INR 1032

Market Lot – 6 Shares

Size – INR 552 Cr – INR 663 Cr

CRISIL Rating – 5/5

Valuation post listing (Assuming issue close at higher price i.e. 1032)

Market Capitalization – INR 5200 Cr Approx

P/BV – 5 times

PE – 18 times (FY12 earning expected at 57)

CAGR – 33% for last 5 years; Expected growth is CAGR 25% for next 3 years

Cash in hand – INR 700 Cr

Dividend yield – 1% expected

Considering all the existing valuation parameters I feel IPO is priced at par. Yet its market leadership, nascent stage of commodities market in country like India, its future plans of entering into equity segment and consistent addition of new products will find high growth in near future. I recommend subscribe to IPO as a good value portfolio addition but do not expect bumper listing.

FDI in Retail – what it means to us?

Team CrawFin/ Harshal Jawale, CFP^CM

Recently opposition party stalled parliament again in protest of Government’s decision to allow FDI in Retail. Retail industry constitutes to 15% of our national GDP. India has highest number of retail outlets per capita about 14 million that employs around 40 million. Moreover it also acts as a marketplace to 60% of our national population that directly or indirectly is engaged into agriculture products.

What was the decision?

1.      To allow 51% FDI in Retail, where they have to source 30% products from Indian small industries.

2.      To allow open store in cities with population only above 1 million. Note India currently has about 50 such cities.

For Kirana Stores –

Kirana shopkeepers will be directly affecting by this decision. I fail to understand why allowing a foreign counterpart will kill Kirana stores if they can manage to survive against long list of Indian superstores like BigBazaar, More, Spinach, Reliance Fresh etc. These superstores are more potential threat to small stores since they are competing with them at national level, very unlike WalMart who will be allowed to open a store only in big cities.

Bigger question is who will lose? Shop workers who are exploited by shop owners will anyway get a job replacement in these superstores. Shop owners are much less in number to voice rollback.

For Farmers –

India prominently agri economy always works against farmers. While superstores make contractual agreement to purchase goods even before they plant seeds, farmers will be well off than current conditions where kirana store buys only after checking quality of goods. All the losses in manufacturing goods gets transferred to poor farmer, otherwise a superstore makes sure the right environment is being offered to a farmer to produce quality goods. In some crops the loss of crop is as high as 40% and farmer bares it all. FDI in retail will solve most manufacturing, storing related problems of food items in the country.

For Consumers –

Small kirana stores offer below average hygiene products to consumer. Moreover in my personal opinion small store never sells a packaged food below MRP, meaning MAXIMUM retail price. Superstores because of its mass buying/selling/transporting power manage to keep prices in check.

These superstores have some wonderful practices of insuring each crop, that makes sure to protect monetary losses. Helping farmers before plantation will create wonders in producing more quality food-grains. Better transportation and storage facilities will be built by these private companies.

Is it justified to let live problems of billions to protect interests of millions? Can this issue be resolved by simply asking these companies to procure 100% from within India? For years we have been cribbing of farmers not getting enough prices while consumers are fighting with inflation, cutting middlemen chain, wrong govt policies, rotting foodgrains, transportation and storage issues resulting into loss of valuable food and we still are not realizing the importance of it. Can’t we reach to a solution by tweaking some points rather than protesting it in full?

I am no expert in retail industry, but believe issues don’t get resolve like this. Issue needs to be discussed to reach out to a solution. Current rollback in FDI is a mere political failure from both government and opposition end; countrymen were, are, will pay price for it.

Do you know - For a person of age 30, term 20 years and Sum assured of INR 40 lakh the annual premium will be only INR 6200 (plus tax benefit). Estimate your life insurance need, read for more details http://crawfin.blogspot.com/2011/11/estimate-your-life-insurance-need.html

Investing into stocks by listening to TV experts – Dangerous proposition

Team CrawFin/ Harshal Jawale, CFP^CM

I come across many investors who invest into stocks reading one article or listens to a expert on TV, later when things do go the expected way they blame expert for the mess. Little they know that the mess is formulated by themselves by finding FREE solutions to arrive at investment decisions.

I am taking example of Mr. Sudarshan Sukhani who advises on CNBC TV18 on trends in the market. Time period taken is just ten days to prove how wrong things can get within such a short time. Below are links, dates and words of him that tells us about the trend of nifty.

On 21^st Nov he says that pullback rally is on cards and nifty may touch 5050

On 22^nd he reiterates possibility of pullback rally

On 23^rd he forgets about pullback rally and advises to add short sell positions because the trend seen is down

On 24^th he advises to stay away from market

On 25^th he again forgets his own advise of adding short sell position and believes that consolidation process is started, according to him nifty may touch 5050 (his original advise on 21^st)

On 28^th he advises traders to exit short sell and buy long positions, trend seems to be up now. His advice follower on 23^rd who might have added short position is sitting on losses, lowest level of nifty were seen, he may never get out of his short position bleeding continuously

On 30^th Nov he again advises to short sell at 4900

On 1^st Dec he again believes that the trend is up and nifty is likely to hit 5200, second time within 10 days his followers are caught at selling position, bleeding continuously

On 7^th Dec, yes you read is right he was not available for few days. So what will you do in such a situation if market makes drastic moves, you would not have your expert to guide you.

I am here just trying to prove how much will it affect within just a matter of days if your investments go wrong. Don’t listen/read to experts on TV or paper, it is simple to advise and add disclaimer. Make these experts accountable for your portfolio even if it means paying a small sum for the service. I am sure all these experts makes good money for their clients because fees paid by them puts expert on toes. Expert then will make sure you transact in right direction, at right time, with right amount, in right stock and won’t just vanish easily. Even if you have free access to expert then make sure you have continuous access to him, then only you will be able to make informed decision if in case he changes his views.

21 NOV 2011

http://www.moneycontrol.com/news/technicals/trend-is-down-short-nifty-now-sudarshan-sukhani_621020.html

22 NOV 2011

http://www.moneycontrol.com/news/technicals/pullback-rally-may-push-nifty-to-5000-mark-sukhani_621784.html

23 NOV 2011

http://www.moneycontrol.com/news/technicals/nifty-may-decline-further-add-short-positions-sukhani_622566.html

24 NOV 2011

http://www.moneycontrol.com/news/technicals/stay-away-dont-trade-today-advises-sudarshan-sukhani_623408.html

25 NOV 2011

http://www.moneycontrol.com/news/technicals/buy-if-nifty-holds-4720-sudarshan-sukhani_624104.html

25 NOV 2011

http://www.moneycontrol.com/news/technicals/nifty-putting-uprange-sukhani-sees-it-at-4600-5000_624273.html

28 NOV 2011

http://www.moneycontrol.com/news/technicals/sukhani-sees-4700-5000-as-trading-range-for-week_625158.html

28 NOV 2011

http://www.moneycontrol.com/news/technicals/nifty-faces-resistance-at-4880-sudarshan-sukhani_625355.html

30 NOV 2011

http://www.moneycontrol.com/news/technicals/market-to-hold-4700-4900-trading-range-says-sukhani_626660.html

1 DEC 2011

http://www.moneycontrol.com/news/technicals/next-target-for-nifty-seen-at-5200-levels-sukhani_627434.html

1 DEC 2011

http://www.moneycontrol.com/news/technicals/5150nifty-possible-buy-during-intraday-dips-sukhani_627564.html

2 DEC 2011

http://www.moneycontrol.com/news/technicals/niftyshort-term-uptrend-buydipssukhani-_628080.html

7 DEC 2011

http://www.moneycontrol.com/news/technicals/mkt-to-trade-within-5150-5200-time-to-bebuyer-sukhani_629968.html

Wealthy Investments need Healthy Methods !!!

InfraBees ETF/ CNX Infrastructure derivative – A long term multibagger bet

Team CrawFin/ Harshal Jawale, CFP^CM

Two years back one friend from NITIE pointed out that all so called infrastructure theme based Mutual Funds hold unrelated companies. His question was what is SEBI doing when fund managers launch a particular theme, collects big corpus and invests into something else which was not originally intended by the investor. For Example if we look at HDFC Infra fund today it holds 50% of its portfolio into banks plus oil marketing companies. Of course one may debate that finance is required for any infrastructure project and so inclusion of such companies is justified but then top 5/7 holdings into banks can never be acceptable for an investor who wish to invest into infra as a theme, he would rather buy banking MF then. More or less similar pattern has been followed by all other mutual fund houses ICICI Pru Infra, Tata Infra, UTI infra to name a few.

If you are searching for a product which can offer exposure to pure infra companies, yet do not wanted to take exposure to any one or two companies since the environment for investing into infra is not positive then InfraBees fund who offers exposure to 20-30 infra companies deserves due consideration.

Launched in Sept 2010, InfraBees is currently managed by Goldman Sach AMC. Its asset size it little less than INR 60 Cr and current NAV is 230. It is currently trading at its 52 week low because of negative market movements. One may buy InfraBees units directly through NSE. Usual MF purchase is also possible to accumulate fund units.

Fund includes companies belonging to Engineering, Telecom, Power, Port, Air, Shipping, Roads, Railways and other utility providers. It comprises of 25 such companies who are also traded in F&O segment to ensure liquidity. Top 10 holdings of the fund are as follows, top 7 constitutes 70% of the value out of total 25 companies.

LNT, Bharti Airtel, BHEL, NTPC, Tata Power, Power Grid, JP Assoc, Idea, Mundra Port, Siemens.

Fund has grossly underperformed to other indices but then that’s where risk to reward ratio turns positive. All the bluechip companies like LNT, Bharti, BHEL, NTPC has been underperforming for many years now. One may buy this fund if he/she hopes that cycle will turn positive at some time in next 3-4 years; after all our country needs Infra more than anything else. This fund eliminates the risk of buying one scrip say Tata power who may fail to capitalize on infra boom whenever it comes.

NSE is also launching its derivative twin tomorrow. This will also bring in some more interested money into infra as a sector.

Systematically long term investment is strongly advised into this or any pure infra related fund.

Wealthy Investment needs Healthy Methods!!!

Rupee at 53 – Bonanza to NRI’s

Team CrawFin / Harshal Jawale, CFP^CM

Indian rupee is sliding almost daily these days. Since USD is appreciating against all currencies it is nothing to worry situation yet simply the pace of depreciation of rupee is creating waves. Yesterday Rupee broke its all time low and currently is trading at around 53/USD. RBI and Finance ministry too are not making any encouraging statements. For an import driven country like India (majorly Oil) this is probably the worst news in 4 year long global crisis. Widening fiscal situation will only make things worse.

Still it is definitely great news for another part of India who lives out of India, the NRI community. NRI’s who always look for higher rupees for their hard earned foreign currencies to remit money back to motherland for various reasons; this is one of best times. It is not only on currency front that NRI will benefit but also for making investments, fixed deposits are available at above 10%, equity markets are down by over 30%.

Rupee has fallen by about 16% since Aug 2011 against USD. More importantly it is not only falling only against USD but also against almost all global currencies. Pace of depreciation is so high that it makes Indian Rupee one of the worst currencies in Asia, next being depreciated only by 8%.

Even though some experts predict that Rupee will fall to 54-55 easily, I think it is not time to wait for fractional higher benefits at the cost of opportunity missed. It is not only NRI’s but also foreign investors who put many times large chunk of money into India are waiting at sidelines to enter. Intervention by RBI may also put break on rupee slide.

Every year India receives large money through remittance, about 55 billion USD in 2010 highest in the world. Current situation definitely makes it super attractive to remit more than usual. The moment India starts receiving this money in plenty the rupee will start appreciating probably at similar pace that of depreciation.

This article is dedicated to few of my friends sitting outside of India and holding USD for more than couple of years in anticipation of better cross currency rates. The rate have come, may even move up a bit, still the interest amount lost on deposits in banks is much higher.

Wealthy investment needs healthy methods!!!

LiquidBees ETF

Team CrawFin/ Harshal Jawale, CFP^CM

It is first liquid ETF in the world. It is traded on both BSE & NSE just like a share. Objective of this fund is to provide liquidity in the market with a slice of safety. Fund is managed by Goldman Sachs Asset management private limited. Fund was listed in 2003, with daily NAV set to INR 1000. Fitch has assigned rating of AAA to the fund.

When any investor sell shares the amount stays idle with his broker for some time. This duration can be in months if the investor does not find suitable buy opportunities. So to capitalize on this idle time investor may think of putting this money into Liquidbees where he will get upto 5-6% annual returns with ease. These returns are given on daily dividend basis so one will get fraction of returns even if he keeps this fund for one day. This daily dividend is compulsorily invested into fund and extra units are credited by the end of month. Units are shown upto 3 decimal.

Example – Suppose Mr. Ram sold Infosys shares worth INR 23000. Now Ram does not want to keep it idle till next buy opportunity comes. He will simply buy 23 units of LiquidBees say on date 12^th Nov 2011. He continues to hold this fund till 25^th Nov 2011. Now he will get extra units of Liquidbees for the period of 13 days but at the end of month i.e. 30^th Nov 2011. So on 25^th Nov 2011 he will sell 23 units of Liquidbees. He will continue to accumulate extra units of fund till the fraction becomes 1 and then sell it.

Say new buying opportunity that came on 25^th Nov 2011 was to buy TCS then Ram will sell his 23 units of Liquidbees and buy TCS shares worth INR 23,000. Since the settlement of both is on T+2 basis the settlement takes place automatically on the same day.

This fund mitigates liquidity risk that an investor posses by keeping idle cash with his broker for many days. In old days if investor wants to minimize this risk then he had to request for payout from broker and get money transferred to his saving account to get some returns on saving account. This fund reduces all this trouble and makes money available immediately.

Please note some brokers have given trading into Liquidbees at free of cost, while some still charge normal brokerage on it. It is most important to check with your broker about the charges on it else there is no point in trading this fund for 6% annual return, since the brokerage charges on multiple times transactions will be much higher than expected returns.

Do you know – For a person of age 30, accidental death insurance worth INR 10Lakh costs only INR 500 p.a.  Read more on http://crawfin.blogspot.com/2011/11/estimate-your-life-insurance-need.html

Estimate your Life Insurance need

Team CrawFin/ Harshal Jawale, CFP^CM

Every one of us owns a life insurance policy, thanks to LIC for marketing and government of India for providing tax benefits. Yes our usual idea of purchasing Insurance policy is someone of our relative is LIC agent and we find it difficult to say no to him/her plus tax benefit carrot shown to us is difficult to resist. Although the intent from LIC may attract healthy debate it has done excellent job in creating awareness about Life Insurance need of an individual.

In this article we will focus on how much insurance amount is really required for an individual. Following are some thumb rules followed by us financial planners to estimate life insurance of a person, fine tuning depending on each person’s need needs to be done before reaching to final amount.

• Income Rule –

             Objective of this rule is to provide income support to your family for number of years.  

                   Below Age 35 = 12-15 times of your annual income

                   Age 35-50 = 10-12 times of annual income

                  Above age 50 = 8-10 times of annual income

• Premium as % of Income –

           Objective of this rule is to keep a check on your premium cost, if you are paying lesser premium it is more likely that you are underinsured as against your income levels.

                5% should be premium amount of annual income to replace your income

                1% premium of annual income plus for each dependant

• Human Life Value (HLV) –

                 Find Current Income

                 Deduct Current personal expenses

                 Find earning life remaining

                 Find its present value

This method calculates your actual amount needed. It calculates your potential earning till retirement minus your own expenses equal to amount that you are likely to earn for your family on net basis. Buying insurance meaning you are replacing the loss of that income.

• Need based –

               Calculate immediate cash needs like medical costs, any loans etc

               Net income needs like ongoing family expenses

               Special needs like child’s education, marriage, spouse retirement needs etc.

Addition of all above is your need to amount to earn in future, buying insurance will ensure that you fulfill all financial obligation even after death.

** Please note in method 3 & 4 it is very difficult to estimate future needs so it is best left to financial planners to calculate for you since they will also consider the corpus that is already generated by you till date, else simple methods 1&2 are enough to reach approximate insurance need.

I come across many individuals who claim that they have been cheated by agent by misspelling of product. I believe the bigger onus lies on investors shoulder to understand that when you are paying premium of INR 20,000 for 20 years term for sum assured of less than 5Lakh/pa then you are not buying insurance.

For a person of age 30, term 20 years, Sum assured of 40lakh the annual premium is only INR 6200 (tax benefit extra). Other riders for Sum assured 10lakh the annual premium amount is

Critical Illness rider = INR 1500

Accidental death benefit = INR 500

Permanent Disability Benefit = INR 400

Make sure you have some/ Pref. all riders with your policy. LIC doesn’t offer these riders with pure insurance policy.

Do you know – HDFC Ltd offers platinum fixed deposits at 10% pa. Read more on http://crawfin.blogspot.com/2011/10/hdfc-platinum-deposits-10-pa.html .

Wealthy investments need Healthy methods!!!

Junior Nifty ETF – exceptional Midcap pick

Team CrawFin/ Harshal Jawale, CFP^CM

Goldman Sachs Nifty Junior ETF (Juniorbees) is the first and lone mid cap index ETF launched in India as on date. It closely tracks the junior nifty index with nil entry/exit load for investor. Taxation treatment of it is equivalent to normal equity trading. Expense ratio being 1% for full year it tracks junior nifty index very closely allowing investor to take midcap exposure with ease.

Picking up midcap is most difficult thing for an investor. When it is easy to pick any news in any large cap company, often news reporters are not aware of issues with midcap stocks. Also not all brokers/ fund houses cover all midcaps leading it to confusion in investors mind because of lack of information. Taking exposure to few midcaps may be dangerous in such environment.

Before this ETF launch taking exposure to midcap-small cap mutual fund was one option for an investor. But here also investor has to rely on fund managers’ assessment of picking of any stock. While ETF gives exposure to top 50 midcap companies, diversification is bound to exist. Moreover index itself keep churning companies on regular basis, new good companies replace old non performers.

Junior nifty ETF can be bought on BSE/NSE using dmat account. It currently trades at little above INR 100 which is its minimum amount for investment. Flexibility in purchasing and selling, diversification into various sectors, and quality midcap companies are some of its main advantages over any other midcap offering.

Components of Junior Nifty (50) in alphabetical order –

Aditya Birla Nuvo,     Adani Enterprise,        Andhra Bank,             Ashok Leyland,

Asian paint,                Bank of Baroda,         Bank of India,            BEL,              

Bharat Forge,             Biocon,                      Bosch Ltd,                 Canara Bank,             

Colgate Palmolive,      Concor,                     Crompton Greaves,    Cummins India,         

Dabur,                        Exide Ind,                  Federal Bank,            GlaxoSmithKline,

Glenmark,                  GMR Infra,                 HDIL,                       HPCL,

IDBI,                         Idea,                          IFCI,                         Indian Hotels,

Indus Ind Bank,         IOB,                          JSW Steel,                 LIC Hsg Fin,

Lupin,                        McDowell,                 Mphasis,                    Mundra Port,

Oracle fin serv,          PFC,                          REC Ltd,                   Reliance Capital,

Shreeram transp fin,   Tata Chemical,           Tech Mahindra,          Titan,

Torrent Power,          Ultra Cement,            Union Bank,                United Phosphorous,

Yes Bank,                 Zee Ltd.

As we always advice to take 25-30% exposure to midcaps out of total equity (direct/indirect) investment, I recommend junior nifty ETF should take larger pie of it.     

Wealthy Investments need Healthy Methods!!!

I-Strategy – a No brainer investment idea (ABCIL)

Team CrawFin/ Harshal Jawale, CFP^CM

This article is in response to my previous article “The ABC of SIP” (http://crawfin.blogspot.com/2011/09/abc-of-sip-systematic-investment-plan.html) where I discussed about simple investing strategies with very small sum, including Sachin Tendulkar case study. Feedback that I received was even though it seems interesting but the theory is told when things are already done. Investor cannot rely on making future investments on the basis of such stories when previous data is analyzed.

I am here putting forward my own theory of investment just to check whether such no brainer yet regular investment will yield decent returns or not. I do not advocate investments with the theory mentioned and it should be taken as a test to check if such things work or not.

Theory – We will consider investing a small sum into 5 stocks, each on one day of week for such 10 weeks. In total it will make 10 installments in each stock, 50 in grand total. We will keep purchasing stock at the opening price of the day. This will average our purchase price over 10 weeks. Since it is a no brainer we will not worry about picking smaller companies, no changes in the amount of investment etc. We will pick only domestic stories with strong and clean management record and only from nifty fifty stocks.

My picks for such theory are as follows (ABCIL), you may pick your own. Some negatives are given which your relationship manager must be giving you since index has risen more than 10% in two weeks. When we talk about systematic investment we should not be worried about top-bottom and 5-10% variation in price.

Axis Bank

Saving rate deregulation, increasing NPA, new banking license etc will affect banks

Axis Bank is already up 17% from its 1 month low, results are out

Bajaj Auto

Higher interest rates, lower auto sales, many competitors

Bajaj Auto is already up 14% from its 1 month low, richly valued at 1720. Results out

Coal India

Mining bill affect its profitability, coal supply issues

Coal India is close to its monthly low today, result awaiting

ITC

Rich valuations of the sector, high inflation meaning high raw material costs

ITC already up by 10% from 1 month low, trading at life-time high valuations. Result out

Larsen & Toubro

High interest rates affecting order book, declining sales and profit, down 40% from year peak

Trading at year low, result out

Points to note –

1. Assuming total amount is INR 1lakh, 50 equal installments everyday
2. Stocks are purchased at opening price of the day
3. Investments will start from this week i.e. 31^st Oct 2011; Have no intention to wait for market to find its bottom.
4. One or all stocks may be in loss or profit depending upon the market trend, test is not to counter the trend but to minimize its effect
5. Actual investments into stocks selected is not advisable at current level
6. Stocks are selected largely on the basis of combination of good/bad result, good/bad projected outlook, strong and clean management, long term India shining story.
7. Since it is a no brainer, I am keeping things away from any good/bad news, or any other happenings in the market. Whatever happens I am suppose to follow code of conduct. That’s what a retail investor expected to do without the help of expert.

This article, blog is created and dedicated to creating awareness about financial products/services/ strategies to help individuals manage their personal finance. I do not endorse stock TIP ideas; if only I knew which one would do best today I would have taken a bet in that stock rather than writing a blog. I am simply a strong believer of investment strategies that has earned decent returns over the years. Understanding of equity as a asset class is more important than asking hot tip for the day.

Disclaimer – It is safe to assume that I or my clients may have vested interest into stocks discussed above.

Wealthy investment needs healthy methods!!!