Low fee, limited service - ICICI into Financial Planning

ICICI Securities? financial advisory services may not be as customised as an individual advisor?s

Source – Business Standard

There is yet another option for those looking for help to plan their finances. ICICI Securities on Tuesday launched its bouquet of financial planning advisory services — including basic financial planning, portfolio evaluation services and estate planning.

ICICI Securities will offer its services through the offline and online routes. In case of the former, individuals can interact with their planner directly. The latter, though, is presently available only for ICICI Direct customers, as it operates on a login basis, according to Abhishake Mathur, senior vice president, financial planning services, ICICI Securities.

Here's how the online model works: Existing customers can log on to their account, choose the financial planning services option and fill details such as family income, expenses and savings, goals, etc. After this, they can proceed to seek an appointment with the financial planner for discussions. The planner would take seven to 10 days to formulate the plan.

AT A GLANCE

Services offered: Financial planning, portfolio evaluation and estate planning

Mode of interaction: Face-to-face or phone interaction

Fees: Rs 5,000 - 7,500 for a basic financial plan

USP:

No sale obligation clause to ensure that advice is unbiased

A three-month post-plan support offered

No minimum portfolio size or annual income required

Hitches:

Concerns about customisation and detailing of plan

No continual engagement opportunity

The unique selling proposition of the plan for many may be the 'no sale obligation' clause. That is, the customer isn’t obliged to purchase products from ICICI group companies and is free to route his investments via other intermediaries. Also, unlike the international financial planning major, Ameriprise, that started its India operations in January, ICICI is not targeting a specific income group. Ameriprise Financial is targeting those with a gross household income between Rs 20 lakh and Rs 1 crore.

ICICI Securities' introductory fee is Rs 5,000 (online) and Rs 7,500 (offline), with a three-month post-plan servicing period, where the client may approach the company for clarifications or tweaking his/her plan. "This is a one-time fee. It may be slashed at the time of plan renewal," says Mathur. He adds that currently these fees will be charged for individual services. Collective pricing, i.e. one for all services being opted together, is still being worked out.

Comparatively, Ameriprise's Envision (a comprehensive financial plan) costs Rs 12,500 a year. It entails a minimum of four sittings or quarterly updates. "The planner will prepare the plan after the first interaction and take stock of the investments and whether the client is reaching the goal(s) in subsequent sittings," says Kapil Narang, COO, Ameriprise Financial India.

Independent financial planners may be the costliest, charging between Rs 5,000 and Rs 20,000 or more. There is no standard pricing mechanism, according to Suresh Sadagopan, a certified financial planner.

The difference in the fees charged is attributed to the engagement level and the detailing of the plan. For instance, a financial planner points out that on account of the low fees charged, some portion of the recommendations may be software- or system-driven. Especially, reservations are voiced in case of the 'online' planning mechanism, where there is no interface between the planner and client. "Financial planning is all about customisation and studying the client's cash flows minutely. Like, the individual may be receiving an additional income as bonus or incentives during the festive season. This spike in the income inflow can be diverted towards investments or loan pre-payments. Such suggestions can be made only through an in-depth dialogue with the client. He would rarely do so voluntarily; he must be prodded for such details," says Sadagopan. Something that is not possible in an online model.

Another grouse one may harbour is the absence of managing and monitoring of the portfolio service in ICICI's bouquet, chiefly because a financial plan cannot be looked at in isolation. One must check regularly if the investments are faring in line with expectations. So, if you enlist an independent advisor's help, he may charge a percentage (0.5-1 per cent) of the portfolio under management and take stock each quarter, if it needs to be tweaked. In ICICI's case, you would have to be proactive. You can approach them for a portfolio evaluation service, a one-time health check for your investments.

Despite the limitations, financial planners welcome ICICI's foray. They say, given the low number of practising certified financial planners, ICICI's large presence may help take the service to a large number of retail investors.

13 silly tax provisions

Source - Moneycontrol

In spite of the fact that year after year the Government is trying to simplify and rationalize the Income-tax Law but still there are innumerable provisions in the Income-tax Act which make them appear silly by a large number of tax paying public of India. In this small article an attempt is being made to list down some of these common tax provisions which may be amended in the forthcoming Finance Bill  so that a large number of tax paying public of India can get some relief. It is expected that the Hon'ble Finance Minister will surely take care to address these provisions with an open mind  specially when the Direct Taxes Code is not expected to be implemented from 1-4-2012. Here are these silly tax provisions as commonly complained by the tax payers.

1. A husband cannot give a gift to his wife otherwise as per the provisions contained in section 64 of the Income-tax Act clubbing provisions would apply and the income of the wife will be clubbed  or added with the income of the husband.  Is it not unrealistic tax provision?  The law should be amended  at least  now through the Finance Bill  to permit some reasonable amount which can be given to the spouse without attracting provisions of section 64.

2. Presently as per rule-3 of the Income-tax Rules, 1962 there exists a complete different set of tax treatment specially with reference to rent free accommodation provided by the employer.   While the Government employees pay licence fee and are out from the tax net but the non- Government sector employees they receive rent free accommodation on which they are taxed exorbitantly namely   7.5 % or 15% of the salary depending on the population of the town.  It is high time that just like race discrimination the concept of employee discrimination should cease to exist in the Income-tax Law. Uniform system of taxing  Salary & Perquisites should be introduced and the provisions to this effect should find place  right now in the Finance Bill.

3. For all types of tax payers who do not have a house of their own or for the employees if they do not get a accommodation from the employer  and they also do not get house rent allowance then they can all enjoy a special tax deduction in respect of the rent paid by them for the house.  The deduction is permissible in terms of section 80GG of the Income-tax Act whereby one can enjoy deduction for rent paid upto 25% of the income. This really sounds very good and interesting and brings cheers to the tax payers but the limit is restricted to deduction of maximum Rs.2,000/- per month.  The limit remains so for the last so many years  hence requires to be changed at least now.

4. Standard deduction  as in the past should  be permissible to all salaried employees.

5. To save capital gain as per the provisions existing in the Income-tax Law a person can invest in capital gain bonds.  As per the provisions of the law contained in section 54EC of the Income-tax law, there is a upper cap of investment under  the Income-tax Law which  presently is Rs. 50 lakhs.  In the past there never was any cap in investment which resulted into property transactions taking place mainly with white money.   But couple of years ago  the Government by amending the provisions of the law has put cap of just  Rs. 50 lakhs for investment in these capital gain bonds.  Putting this cap legally is not valid in the eyes of the law.   Hence, the cap should be deleted.

6. The exemption limit for senior citizens is Rs.2,50,000 per annum.  This is pretty very good in comparison with a normal individual tax payer.  However, the poor senior citizen as soon as the income exceeds Rs.2,50,000 per annum is required to make payment of income-tax @ 10% on income upto Rs.5 lakhs. Hence, the slabs of income-tax should be realigned in all fairness for providing benefit to the senior citizens in comparison with other tax payers.

7. The Finance Minister generally increases the exemption limit once in a while.   The question that remains to be answered in a realistic manner is why should not the Income-tax initial exemption limit be realigned in tune with the day to day minimum expenditure of a person earning the income.  If this aspect is taken into account then surely the minimum exemption limit in all fairness for individual tax payers should be Rs.2 lakhs per annum. It is these unrealistic exemption limits which are responsible for tax evasion in the country.   If the Finance Minister were to consider the realistic situation and also realign the tax rates then obviously the tax evasion in the country could be a thing of the past.  The fact remains on record that whenever the tax rates in the past have been reduced the tax collection has always been higher.  The maximum Tax rate should be 25% only so that tax evasion will reduce.  

8. Leave Travel Assistance granted to employees by the employer enjoy tax exemption twice in a block of 4 years.   However, the present rules provide for travel in any part of India to the employee so also the members of the family.   This deduction is granted as per section 10(5) of the Income-tax Act, 1961.   Unfortunately, the exemption is not available for travel concession granted to employees for travel outside India.  The Income-tax Law should be amended so as to provide the exemption of travel concession even outside India.   Moreover, as per the present law what is exempted is only the value of travel concession and not boarding and lodging.   To make the travel as a real recreational activity for the employee, the deduction of section 10 (5) should not only cover the value of travel concession but also should cover the expenses on boarding and lodging.  Likewise, this deduction should be tax exempted  for the employees each year, specially keeping in view the great stress under which the employees work these days, hence let the  Finance Bill make necessary amendment to this effect.

9. Presently the salaried employees enjoy tax exemption in respect of medical expenses upto Rs.15,000 per annum.  This limit should be enhanced to at least 30,000 rupees per annum in view of increase in the medical expenditure in last 3 years.   Besides, the income-tax exemption is also granted in respect of medical expenses incurred on the employee for treatment abroad but this deduction is available only when the gross income of the employee is maximum upto Rs.2 lakhs per annum.   Well, this restriction on income for availing tax concession on medical expenses abroad should be done away with.   It is a fact that in majority of the cases the expenses on travel for medical purposes of the employees are sanctioned only in respect of senior employees.  Hardly one could find any company in India where the expenditure on foreign treatment is incurred for employees having salary below Rs.2 lakhs per annum.  Hence, this provision must go. 

10. In terms of section 80C of the Income-tax Law presently within the overall limit of Rs.1 lakh deduction is granted to the tax payers in respect of tuition fee paid by them.   However, this deduction is only for the tuition fee.   It does not cover expenses which are directly related to the education of the child like the expenses for purchase of books, payment of school bus, payment of hostel facility and other connected expenses for the education of the children.   The Hon'ble Finance Minister should permit  all legitimate expenses  to be deducted  u/s 80C towards education of the children which will produce  a bright India in years to come.

11. The loss of business is not allowed as a deduction to be set off from sa;ary income  in the case of a salaried employee.  There seems to be no logic in it.  Hence, the provisions should be amended so that even the employees as well as the Directors of the companies can enjoy the tax adjustment of business loss with salary income.

12. To make the life more simple and to ensure that the tax provisions are easy to remember and finally even on the principles of equity, uniformity and justice, it is recommended that the period of holding a capital asset to make it long-term capital gain should be 365 days for all categories of assets whether shares or real estate or mutual funds and also for the non-listed company shares.

13. Presently an individual tax payer to save his capital gain can invest in a residential property by taking advantage of section 54 or section 54F of the Income-tax Act, 1961.   However, this benefit is available only for investment in one residential house why should not the law be amended to grant permission to the tax payer to invest the capital gain amount in any number of residential houses.This amendment alone can help in a big way for removing the housing shortage in the country.

The Finance Bill, 2012 is to be presented in the Parliament and as this time the FM can surely incorporate the above mentioned points in the Finance Bill.

The author is tax & investment consultant at New Delhi for last over 40 years. He is also Director of M/s R.N. Lakhotia & Associates & The Strategy Group.

7 personal finance lessons to learn from Katrina Kaif

7 personal finance lessons to learn from Katrina Kaif

Source - Moneycontrol

Inspirations come in all shapes and sizes. You would surely agree that Katrina Kaif as an inspiration is not only shapely but also quite beautiful.

Katrina was a total novice when she entered the Hindi film industry. She had no knowledge of films. Worse - she couldn't even speak the Hindi language properly. Yet within a short span of 5-7 years she has become one of the most successful actresses in the Hindi film industry.

Many amongst you too would have no knowledge of the personal finance industry. Worse - you wouldn't even understand the financial language. But if you are willing to work hard like Katrina, there is no reason why you too can't become a successful manager of your money.

Lesson 1: Background and past do not matter; what matters is what you do with your present.

Her first movie was called Boom, which ironically went totally bust (even though it also starred the legendary superstar Mr. Amitabh Bachchan). But she didn't let the super-flop discourage her. Instead of feeling sad or sorry about it, she turned the failure into a lesson. You too will experience many failures when you start investing. But don't let them deter you. No one can be 100% successful. All you have to aim for is to have more wins than losses.

Lesson 2: Don't be discouraged by failures, instead learn from them.

To guide her during the initial years, she found herself a mentor. He acted as her friend, philosopher and guide - educating her about the nuances of the films and film industry. More importantly, she was a willing student who worked very hard to absorb all the lessons. You too should find yourself a financial advisor who will pass on all the knowledge to you. More importantly, you should be a willing student. After all, you have to score your own goals. A coach cannot do it for you.

Lesson 3: Find yourself a mentor and be willing to learn.

The first few years of her career she worked with established and successful stars only. You too should begin your investments with large and established companies/mutual funds. There is no point in taking risks until you understand the game.

Lesson 4: To start with, invest only in top-rated and successful companies/mutual funds.

She found a certain comfort level with Akshay Kumar and gave many hits working with him. She didn't try to experiment too much or work with many stars. Identify a few investment options that you easily understand and are comfortable with. Don't buy too many different financial products in the initial years of your investment.

Lesson 5: Stick with a few simple investment products in the early years.

It was only when she started understanding the Hindi film industry and achieved reasonable success that she moved to younger upcoming stars such as Ranbir Kapoor, Imran Khan and Ali Zafar. She also took to doing items songs. Had she done item songs in early part of her career she would have remained an item-girl only. Only when you get a hang of the personal finance industry and have made some successful investments, should you consider investing in different products and upcoming companies. If you start with Futures/Options you will never become a successful investor.

Lesson 6: Move to riskier and specialized products only after you become a reasonably successful investor.

It would be wrong to attribute Katrina's success to only her face and contacts. Starlets with prettier faces and better connections didn't shine long enough. You won't even remember their names. Ultimately, it is her attitude and dedication towards her work that has given Katrina all the success, fame and money. Likewise, the likelihood of you too becoming a multi-millionaire would be determined by just how good you are at managing the resources you have.

Lesson 7: Only "attitude" matters; rest is just a matter of details.

Professions may differ, but the underlying rules to success remain the same. Pick up any person you admire - Sachin Tendulkar, A.R. Rahman, Narayana Murthy, Kiran Bedi, Sonia Gandhi, etc. - and make him/her your inspiration. Success is waiting for you. Are you ready to grab it?

NHAI/ PFC – Tax Free bonds

Team CrawFin/ Harshal Jawale, CFP^CM

Nav-Ratna Government companies offering tax free bonds (on interest) to resident individuals, NRIs and corporate; offers excellent opportunity to park cash in safe mode.

Features of Tax Free Bonds ---

1. Tax benefits u/s 10 clause (15) of the Income Tax Act, 1961 – the interest received on such bonds are tax free in nature.
2. Credit Rating(s) of CRISIL AAA/Stable, CARE AAA & FITCH AAA (ind)/Stable for existing outstanding bonds. Instruments with this rating are considered to have the highest degree of safety in terms of timely servicing of financial obligations.
3. Bonds to be allotted on first-cum-first serve basis up to the issue size of relevant tranches
4. Bonds are to be issued either in demat form or physical form at the option of bondholders. Bonds are proposed to be listed on the BSE and the NSE. (PFC will be listed only on BSE)

Issue Details

Face value/bond = INR 1000

Minimum Application Size = INR 50000 i.e. 50 bonds (For PFC Min app size = INR 10,000)

Type of bond = Tax Free Secured Redeemable Non-Convertible Bonds in the nature of Debentures

Tenure = 10 years and 15 years

Interest rate = 8.2% (10 yrs) & 8.3% (15yrs)

Interest payment = Annual

Issue opens on = December 28, 2011 (For PFC December 30, 2011)

Issue closes on = January 12, 2012 (For PFC January 16, 2012)

These bonds are highly recommended for people who pay tax on Bank Fix deposits.

Do you know – HDFC Ltd offers 10% interest on its platinum fixed deposit. For more details read http://crawfin.blogspot.com/2011/10/hdfc-platinum-deposits-10-pa.html

Muthoot Finance Limited (NCD) – 13% plus Fix returns

Team CrawFin/ Harshal Jawale, CFP^CM

Source – Business Line

Apart from attractive rates, the secured nature of Muthoot's lending (loans against gold) offers some margin of safety in terms of loan to value, investment grade rating (CRISIL AA-) and strong track record with 70 years of experience in gold financing business support the investment. An AA- rating is defined as carrying “very low credit risk”.

Investors can avoid the three year and five year instruments as the 0.25 percentage point higher than the two year rate of interest doesn't really make up for the risks of holding on for a longer tenure.

ABOUT THE COMPANY

Gold loans account for 99 per cent of Muthoot's assets under management with predominant exposure to South India. It has a low proportion of non-performing asset (gross NPA ratio of 0.31 as of June 2011) thanks to gold as collateral. Muthoot has made profits in at least last seven fiscal years. It has 120 tonnes of gold against which it lent at average loan-to-value of 72 per cent. The issue also gives comfort from the gold price movement perspective. Gold prices may continue to remain firm for some time given its safe haven status.

The assets under management are close to Rs 18,000 crore. The interest spreads (difference between interest earned and interest expended) of Muthoot was 10.9 per cent for the quarter ended June 2011. The company has been raising money from retail investors for quite some time through private placement of secured NCDs. As of June 2011, retail NCD borrowings accounted for 26 per cent of overall borrowing. The capital adequacy ratio of Muthoot is strong at 19.2 per cent as of June 2011 as against mandatory requirement of 15 per cent.

Issue opening date – 22 Dec 2011

Issue Closing date – 7 Jan 2012

Issue size – INR 300 Crore with an option to retain oversubscription upto INR 300 Crore aggregating to a total of INR 600 Crore.

Instrument – Public issue of Secured Non- Convertible Debenture (NCD)

Ratings – AA-/Stable by both Crisil & CARE

Face Value – INR 1000/NCD

Minimum Application – 5 NCD = INR 5000

Listing - BSE

Coupon Rate %	I	II	III	IV (Yield)
	13%	13.25%	13.25%	13.43%
Tenor	24 Months	36 Months	60 Months	66 Months
Interest Payment	Annual	Annual	Annual	Cumulative

A WORD OF CAUTION

Muthoot Finance is the fifth non-banking finance company (NBFC) to come up with a public issue of NCDs in the last couple of months. It is also fourth company in as many weeks to hit the market with secured NCD issue. Given such high dose of NCD issuances, investors should avoid allocating too large a portion of their portfolio to such NCDs.

Another NRI friendly step taken by RBI – NRE/NRO accounts freed up

Source - Moneycontrol

RBI on Friday freed up interest rates on non-resident external (NRE) accounts and non-resident ordinary rupee (NRO) accounts in a bid to attract dollars.

With 6.5% interest for NRE term deposits, they will be found to be more attractive by non-residents because there is no taxability in NRE deposits and full repatriation takes place.

Federal Bank has already hiked its interest on NRE term deposits to 6.5% from 3.82% previously.

In the last few years, we saw an increase in the rate of growth of NRO deposits because NRO deposits attract the interest rates as applicable to resident deposits. For example, one year NRO deposit carries a rate of 9.75% whereas the new rate announced for NRE deposit is 6.5%. Now, 6.5% for NRE term deposits will be found to be more attractive by non-residents because there is no taxability in NRE deposits and full repatriation takes place.

Already this year we have seen a growth of more than 20%. With the revision in the interest rates on NRE deposits, we expect the growth to be substantially higher. We cannot say what will be the exact rate of growth, but it is expected to be substantially higher. Of course the inflows to the country will increase; that is needed at the moment and that would happen.

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