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

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.

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.