Invest In India » Investment options

Realty sector attracts NRIs as rupee gets cheaper

Ziaulla Namani — Wed, 21 Dec 2011 16:15:18 +0000

Indians living abroad are now looking back home for some lucrative gains as the currency market throws up good investment options. 28-year old Kabir Batra is living the great Indian dream in America, a secure job at Siemens, enough savings and now it is time for making future investments. And during his holiday trip to Delhi he spotted the right opportunity in Dwarka.

“I wanted to make a good investment in real estate sector but last year I didn’t have enough funds, and this time it is a blessing in disguise as due to depreciating rupee, I am getting deals which are 20 per cent cheaper from last year,” said Kabeer Batra, a NRI.

And as the rupee continues to fight a losing battle against the greenbuck, realty sector is bucking up on a new trend.

“The main demand is coming from Dubai and interestingly new markets like South Africa are also witnessing a new change. Of course traditional markets like US and UK continue to generate demand front the NRI community,” said Anuj Puri, chairman of JLL.

As a rising number of Indians living abroad choose to invest in India, developers are going all out to catch that buyer.

Given that the rupee dollar price parity has resulted in at least 20-25 per cent discount on the project, developers are willing to offer further discount of 10-15 per cent to boost their sales. Many are participating in overseas road shows and have their bets on rupee weakening further.

“We are looking at Dubai road show to get more sales from the NRI community which is suddenly in action due to weakening rupee,” said Bandish Ajmera, chairman – property exhibition at MCHI.

Source – NDTV PROFIT.

Child Plan: Is that REALLY worth for your kids?

Malvika — Thu, 15 Sep 2011 10:15:11 +0000

I am reminded of a Tamil saying, “Experience what it is to build a house, and get a child married”, probably that is the reason why wise parents invest to meet the long term financial obligations like education and marriage cost of their children. In addition the rising inflation rate also calls for starting savings early in a child’s life. However it would be advisable to know, evaluate and compare various means of savings. This could also enlighten you about how “child plans” need not be the only method.

Disadvantages of a Readymade “Child Plan”

v “Child plans” with insurance resemble unit linked insurance plans, starting early in a child’s life and ending only when the child attains maturity. The amount of money invested in these plans is insignificant considering an in-built insurance component, and other charges like premium allocation charges that are the commission paid to distributors. This could lead to low return in the initial stages and additional losses on leaving before completion of the tenure.

v Most of the “Child plans” in the industry comes with a catchy name to capitalize the “Child sentiment” in us.

v We need a different medicine for a kid and adult. But do we necessarily need a different type of investment options for securing a kid’s future. Think.

Alternatives for Child Plan:

v It is to be noted that other investment products like Public Provident Fund, National Savings Certificate, National Savings Scheme, RBI bonds, post office deposits and instruments and mutual funds that serve the purpose of savings and increasing of capital value apply equally well to investment for a child’s future.

v Mutual funds are available in a wide range to satisfy all appetites for risks. In addition there are mutual funds that are designed for meeting long term financial obligations of children. One could also invest in funds with a right balance between debt and equity that promise better capital growth than child plans. It is also possible to go in for systematic investment plan that offers the opportunities of taking advantages of price differences and gaining in the long run.

v It is true that systematic investment plans or SIP help save entry cost and build a habit of regular savings for capital growth to meet children’s financial obligations. It is also possible to avail of tax benefits as such funds are taxed only on maturity and a major child’s income would be taxed separately. I am sure you would agree that this would help saving unnecessary expenses and cuts in investing in child plans.

v PPF or Public Provident Fund is also good as mutual funds, with opening a PPF account for a 20-year period in a child’s name helping to meet long time financial obligations of children. It has been stipulated that an annual investment of just Rs.70000 would leave you with almost Rs.32lac as a result of the compounding effect. It is difficult for a “child plan” with insurance component and upfront charges to offer you such a great return without taking much of risk.

An Ideal Mix:

Instead of going for a “Readymade Child Plan”, one can customize their Investment Plan for their child with a combination of Term insurance, PPF and equity diversified funds.

If tax saving is your motive one can consider ELSS funds instead of a regular equity fund.

It gives you similar tax benefit like a child plan. You get 80 C benefits for your investments. Also the returns are also tax free.

At the same time, the charges are very very minimum and negligible when compared to “readymade child plans”.

You can increase or decrease your contribution every year depending upon your financial situation.

So whenever, you think of child plan think of a customized investment plan for your kid’s future with a mix of 2 or 3 investment options instead of readymade product with a tag “Child Plan”. I am sure you would agree that readymade child plans prove to be not ideal instruments to save. The wisest line of thought would be a mix of diversified investments that gives good return with low charges.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

ALL you wanted to know about Company Deposits

Malvika — Fri, 22 Jul 2011 06:57:35 +0000

Company Deposits are simply nothing but fixed deposits in companies that earn a fixed rate of return over a period of time. Company deposits are really down-to-earth products. The influential advantage of the company deposits is its plain simplicity. Company deposit is understood even by the most novices among the investors community.

Have you ever wondered the logic behind why pure vanilla flavored ice cream sells more than any other flavor? Similar logic is just as true when it comes to the company deposits vis-a-vis many other modern investment options.

With the meltdown of NBFCs almost a decade ago, company deposit market had a major slow down, but volumes still remain significant and there are loyal investors who prefer company deposits to other investment products.

Advantages of Company deposits:

v Assured return.

v Higher interest when compared to bank deposits.

v Low risk when compared to stock market investments.

v Service at your doorstep.

v Lock in period in most of the cases is 6 months only.

v If the interest income is less than Rs.5000 in one financial year, then NO TDS.

Risk in Company Deposits:

Company deposits are basically unsecured. That is if the company defaults in repaying the interest or principal, the investor will not be able to recover his capital. As a company deposit holder, you don’t have any lien on any asset of the company, in case it goes into financial difficulties. This makes the company deposits a risky investment option.

Identifying Risky Company Deposits:

One of the important tasks in investment planning in company deposits is to identify the risky company deposits and avoiding them. If you find any of the below symptoms in any of the company deposit scheme, then it is better to avoid such company deposit schemes.

ü Poor credit ratings like A or lesser ratings.

ü Companies making losses.

ü Companies that skip dividends.

ü Companies that offer higher than 3% to 4% of bank deposit rates.

Checklist for choosing right company deposits:

There are some good investment options in company deposits. Also there are some bad investment options. If you know how to select the right company deposit then company deposits can be really an interesting investment option in your portfolio.

Ø You need to ignore all the unrated companies and need to choose companies with the rating of AA or higher.

Ø Choose the company with better reputation within a given rating grade. If you read business papers and magazines periodically, it is not difficult for you to check the credentials of the company.

Ø Take the help of the qualified financial advisor in choosing the right company deposit. But mind you, there are very few reputed and qualified financial advisors.

Ø Company deposits need to be spread over a large number of companies in different industries. By this, you can diversify your risk. Irrespective of the rating and reputation of the company, don’t invest all your investments in a single company deposit scheme.

Ø You need to check on the servicing level and standard of the company. You need to ignore companies that don’t care or care little about issues like sending interest warrants and principal cheques.

Ø After investing in a company deposit, you need to constantly track the company’s credit rating. The times are uncertain and downgrades are rampant.

Ø Check the company’s balance sheet for its asset back up, profitability, reserves, existing borrowings and loans.

Every investment has its distinct features and benefits. Likewise each investor has specific risk taking ability and personal needs. Professional investment planning needs matching of the product benefits and features with the financial objectives of the investors. So one need to weigh the various alternative investment options like bank deposits, debt funds vis-a-vis company deposits before making a choice.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

All you wanted to know about Mutual fund ELSS

Malvika — Fri, 24 Jun 2011 06:07:47 +0000

There are so many tax saving investment options; how Mutual fund ELSS Schemes stand out from all other options?

A Mutual Fund ELSS is similar to diversified equity funds. That means the fund manager can invest in shares of various companies across various industries. The difference is ELSS has got the added tax benefit, something a diversified equity fund does not offer.

ELSS is part of the Section 80C instruments which are cumulatively eligible for a deduction from income up to Rs.1 Lakh. This gives the tax payers benefits from 10 per cent to 30 per cent (excluding the educational cess) based on their current tax slab.

The other tax saving investments like NSC, PPF will give only 8% return p.a whereas the Mutual Fund ELSS has got the potential to deliver more than 12% return p.a. Also the lock-in period in Mutual Fund ELSS is 3 years and with NSC it is 6 yrs lock-in and with PPF it is 15 years. Among the various tax saving investment option, Mutual fund ELSS has got the least lock-in period.

Ulips are also one of the tax saving investment options. But now everyone has realized that Ulips has got heavy front loaded charges. Moreover smart investors want to separate their insurance from their investments. They no longer see insurance as an investment; they see insurance as a protection plan. So the smart investors go only for pure term insurance and reject ulips.

This is how Mutual Fund ELSS stands out of the crowd.

Before deciding to go for Mutual fund ELSS, here are some points to ponder over. First check your overall portfolio. Does it need more equity exposure? If yes then you can go for ELSS; if no then you can go for PPF or NSC.

Second thing is to keep in mind, the equity investments are for long term, say 5 years or more. Though the lock-in period in ELSS is 3 years it is better to invest with a time horizon of 5 yrs or more.

Also investors need to keep in mind, SIP is the best form of investing in mutual funds and ELSS is not an exception. So doing an SIP in ELSS is a good strategy to be followed.

The poor performing ELSS has given around 10% annualized return in the last 5 years whereas the best performing ELSS has delivered around 25% annualized return in the last 5 years. So investors need to be careful in choosing the right ELSS scheme. Past performance, risk adjusted return, consistency are a few parameters to be evaluated in selecting a best performing ELSS scheme. Investors also can approach financial advisors for selecting the right scheme.

There are two groups of ELSS investors. Majority of investors belong to the first group. They will wake up late to these tax saving investments. For salaried individuals, it is typical that they will be informed by their accounts department somewhere around end of January to provide proof of tax saving investment immediately or else extra tax will be deducted from their February salary. At the neck of the moment, the choice ends up being guided by convenience alone. They tend to think about tax first and investments later. As long as something saves tax, its real benefits and features as an investment are paid less attention to. That means the investments will be chosen more for convenience than for suitability.

There is another group of investors. Though this group is a very small group, it is a very smart group. They will not rush for tax saving scheme at the last minute. They will plan in advance. That means they will have more time to choose the right product. They will save tax as well as choose a good investment option. They will also check whether this particular tax saving scheme will suit their overall portfolio or not; will this tax saving investment is going to fit into their comprehensive financial plan. That means they will consciously choose an investment which saves tax as well as helps them in achieving their financial goals like children’s higher education, buying a house, retirement plans.

So…now just check up which group you are in.

The author is Ramalingam K, an MBA (Finance) and Certified Financial Planner. He is the Founder and Director of Holistic Investment Planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He can be reached at ramalingam@holisticinvestment.in.

©2009 Copyright by Invest In India

How to increase fixed income?

Malvika — Fri, 28 Jan 2011 05:11:52 +0000

Inflation and the rising coast of the basic necessity items in the year 2010 have made the common man to struggle and adjust with the available finance.

Inflation forcing the rates to move up, banks may be forced to hike their lending rates. So the point in question is how to manage and grow the fixed income?

The options that can be taken into consideration are as follows;

Fixed deposits (FDs) in Bank: This is the simplest and easiest of all the investment options available to most of the Indians. The Deposit Insurance and Credit Guarantee Corporation of India guarantees reimbursement of Rs 1 lakh if default happens in case of the bank fixed deposits. However one should note that different banks offer different rates on FDs.

Schemes by Indian postal Department: Indian post office give guaranteed returns and are attractive investment options. Anil Chopra, Group CEO, Bajaj Capital says, “These schemes find favour with investors who are looking for sovereign guarantee.” The Interest to be given on the investments are fixed by the Government of India, and do not change often, unlike bank deposits.

Currently, National Savings Certificate and Post Office Monthly Scheme and Public Provident Fund offer you a return of 8% p. a. “NSC and PPF are eligible for deduction under Section 80C and, hence, find favour with some taxpayers,” says Anup Bhaiya, MD and CEO, Money Honey Financial.

Employee Provident Fund is a retirement benefit provided to the salaried class. On September 15, 2010, the Employees’ Provident Fund Organisation raised the interest rate by 1% for 2010-11 to 9.5%.

Company Deposits are unsecured instruments. Their safety depends on the financial position of the company. Hence, investors have to be very careful while choosing a company. Better check the credit rating of a company you are interested in investing.

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Options to save money under tax section 80 C

Malvika — Thu, 13 Jan 2011 05:40:53 +0000

Tax act is quite taxing and people often look ways to save the money rather than giving it as tax.

The best option to save money is to invest it under section 80C. Section 80c is the single most important aspect under tax provision.

This article gives a glance the various approved schemes for investing in section 80 C.

In order to plan to investment astutely know your tax liability based on the tax slabs issued by the government as per tax norms for the financial year 2010.

Existing investments, such as contribution to the Employees’ Provident Fund, repayment of housing loan and premiums for life insurance and health insurance can be used for Tax deductions.

With the announcement of new tax slabs this year, infrastructure bonds are good propositions to invest in. Apart from this, there are investment options like ULIPs and saving schemes provided by investment and insurance players in the market.

Mediclaim is an area which remains unutilised while tax planning and investment. Use health insurance plan to avail a deduction up to Rs. 15,000. Your tax exemption can be capped upto 20,000 for parents who are senior citizens.

Life insurance policies are also good option for tax savings under 80C and will give return as well.

The Indian postal system offers a wide range of tax saving options along with higher interest rates. Most popular financial instrument of Indian postal system is -

Post Office Time Deposits

Post Office Monthly Income Plan

Post Office Recurring Deposits

National Saving Scheme

Public Provident Fund

National Saving certificates.

Your home loan and the annual tution fee you pay also helps you to save money under section 80 C.

Before finalising anything it is always better to consult a financial advisor to get things done in a way that suits you the best.

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Investment options to Save Tax under Section 80C

Tushar Mathur — Tue, 09 Feb 2010 05:57:00 +0000

No one likes paying tax and it prompts everyone to look for options that may reduce their tax liability. There are many provisions to do this and one of the most common options is the tax deductions under Section 80 C of the Income Tax Act. There are various investing options under 80 C that enable you to reduce your taxable income up to a maximum limit of Rs 1 lakh.

The eligible deductions that everyone might be aware of are contributions to Employee Provident Fund, Payment of tuition fee or repayment on home loan. In addition there are investment avenues that are eligible for tax deduction about which you might have little knowledge.

Investing in Government Securities

For those who seek absolute protection of their capital, Investing in Postal Saving schemes such as NSC or putting money in PPF (Public provident fund) is an option.

Public Provident Fund (PPF)

PPF offers interest income in the range of 8% with annual compounding. However, the maximum amount that can be invested in PPF is Rs.70,000 and money cannot be withdrawn before the completion of 6 years. Those who look at PPF in terms of their retirement corpus and feel that their current PF deduction is not sufficient, may consider this option.

National Savings Certificate

Another popular avenue investing – NSC also offers a return of 8% on half yearly compounding basis. Another feature is that interest accrued on NSC is also eligible for Section 80 C benefit. The interest on NSC investment, except in the sixth year, is not paid but credited to the investor’s account. So, the interest that accumulates is treated as invested in NSC and the accumulated interest thereby qualifies for tax deduction. The duration of NSC is for 6 years with an option of premature encashment after 3 years. However, that would reduce the net yield from NSC.

Tax saving FD’s

This is a relatively new kid on the block. Tax saver fixed deposits are issued by banks for a tenure of 5 years and premature withdrawal is not permissible. It generates interest income of 8% with quarterly compounding. The interest income is taxable. If we compare tax saving FD’s to NSC, Tax saving FD’s have an edge on lock in period which is lesser by one year. However NSC have an edge from the fact that interest accrued is also eligible for 80 C limit for the first five year.

Investment in Equity linked Saving Scheme(ELSS)

ELSS are funds invested primarily in equity shares of companies. They have been in limelight for their superior performance in the recent past and are a popular tax saving investment. Due to their tax saving nature, they are also known as tax saving mutual fund schemes. Like all investment avenues under Section 80C, ELSS funds also involve a certain lock in. In this case the lock in is for three years which means that they cannot be withdrawn for a period of three years from the date of investment. The ELSS Fund manager basically invest 80% of the total amount in the equity shares and the remaining 20% is invested in other instruments like bonds, debentures, government securities and others.

However the basic risk with ELSS scheme is that since it has a considerable equity exposure, the returns are linked to market returns and hence there is no guarantee of returns and even capital. At the same time, ELSS can also be seen as a way to long term investing in equity markets and with India growth story unfolding and fundamentals looking intact, investment experts anticipate that equities would continue to outperform other investing avenues for at least next 5-7 years. Investing in ELSS provides dual benefit of capitalizing on superior returns as well as tax saving. With the current market turmoil avoid this instrument unless you are looking for a long term investment. If that is the case look for good fund managers with stellar tax records.

Life Insurance and Tax savings

As far as life insurance is concerned, endowment plans (money back plans) have been a popular source of investing.There are various long term life insurance policies which give you good returns, tax savings under 80C and an insurance cover as well.

ULIP’s have taken a center stage now since they offer insurance as well as market related returns in a single product. However, investors should understand the underlying structure of ULIP carefully since these offerings have a substantial charge towards expense in the initial years and is advisable only for investors with a large investing horizon. Avoid ULIPs if you do not like to risk money. Also invest in ULIPs with a long term horizon of a minimum of 10 years.

Another avenue within insurance domain is Pension plans. Pension plans have got a boost in last finance bill with the overall limit raised from Rs. 10,000 to Rs. 100,000. Senior Citizen Saving Scheme 2004 and Post Office Time Deposit Account have also been included in Section 80 C.

However some people may be biased towards other investing options as compared to Life Insurance products since they may prefer insurance and investments separately.

Infrastructure development Bonds

With a return in the range of 5-6% this is the last avenue a tax saver would resort to. The dismal returns provided by these bonds have resulted in the investors shying away from these bonds. The return is hardly good enough to fight inflation, leave alone wealth creation.

So investing in any of the above avenues would help you reduce your taxable income by a maximum of Rs 1 lakh, irrespective of how much you earn and under which tax bracket you fall.

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Banks witness increase in low-cost deposits

Tushar Mathur — Fri, 06 Nov 2009 09:55:00 +0000

Banks are experiencing increase in flow of funds in low-cost deposits rather than in bulk deposits.

The reason for increase in the share of low –cost Casa deposits is mainly because of revival in stock markets, economic activity and a fall in term-deposit rates.

As per the latest reports from banks, in most of the public sector banks there has been increase of 20 per cent in the low-cost deposits during the current financial year (2009-10). Whereas during the second half of 2008-09, in Casa deposits flow of funds was low to some extent because of high deposit rates, thus for most of the banks the share of these deposits got reduced. The banks started reducing deposit rates which fell to 6.25-7.5 per cent from 8.75-10.5 per cent, therefore individuals started looking for other investment options rather than investing funds in fixed deposits.

However on current account balances banks do not give any interest, while on savings accounts banks give 3.5 per cent a year.

The increased flow of funds in Casa has helped some of the banks such as ICICI Bank, the country’s largest private sector bank, to increase their Casa base. During July-September alone, ICICI Bank Casa base had increased by Rs 9,000 crore. The reason for increase in the share of Casa in total deposits was mainly due to decline in the deposit base as the bank avoided high-cost deposit from companies. The bank said in spite of rejecting or retiring bulk deposits, the mix between retail and Casa deposits still stand to 50-50.

The sources said focus to increase Casa, by taking certain measures such as higher minimum balance for savings bank accounts, was not completely responsible, it was due to companies moving towards markets for initial public offers (IPO) and assigning to institutional investors (QIPs), funds were transferred to the banking system for a few days. “This was one factor but not the only factor,” ICICI Bank told analysts.

Moreover the banks which saw fall in the flow of funds from sectors such as real estate and gems & jewellery as a result of financial crisis, are witnessing revival of sorts. In the real sector the funds have started flowing due to launch of new projects, gems & jewellery sector is on the path of recovery, an executive with a private sector bank said.

In the public sector banks such as Bank of India, Punjab National Bank and Bank of Baroda there has been 8-10 per cent growth in Casa till September over March. While Union Bank saw the highest growth in Casa in the first six months at 17.8 per cent with Casa accounting for 71 per cent of the incremental deposits since March.

State Bank of India (SBI) country’s largest lender Casa share in total deposits stood at 40.96 per cent at the end of September, the increase of 126 basis points (bps) over the same period of the previous year.

The increase in Casa funds in public sector banks was possible because the government had asked PSBs to provide growth targets for low-cost deposits in their statement of intent for 2009-10. This is the first time such a step was taken, as in previous years the government used to look for overall deposit growth targets. The increase in Casa was mainly done to ensure that banks can keep their cost of funds low, which help the government to bring down the lending rates.

In the recent months, the Reserve Bank of India (RBI) has also shown its concern on the falling level of Casa as banks over the last few years mainly depended on high-cost bulk deposits the funds coming in from companies, including public sector entities.

Over the years, there has been decline in the public sector banks share of Casa in total deposits, which has reduced from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.

“There was a cut in spending in this year and increase in the propensity to save. This was mainly because interest rate on fixed deposits came down drastically and the depositors did not want to lock in their funds in fixed deposits,” a senior executive of a public sector bank said.

In the last one year banks have reduced deposit rates more than 300bps. For instance SBI is offering 6.25 per cent for one-year deposit; a year ago it was as high as 10.5 per cent.

The extension of branches has also helped banks in increasing the low-cost deposits. For instance during the first six months, SBI and Union Bank of Indian have opened 500 and 160 branches, respectively, have been benefited from the expansion.

According to bankers as the public and private sector banks are expanding their branches the share of Casa is likely to rise further.

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Investment options in India

Tushar Mathur — Thu, 31 Jul 2008 13:17:17 +0000

If you are looking to invest in India, do you sometimes wonder where to start?

Do you think India with its mature capital market, relatively control free economy and backed by professional banking services offers diversified investment options?

The first step is to assess your personal need for liquidity, capacity to take risks and the returns you are looking for.

As a safe long term option you can look at investing in PPF (Public Provident Fund) or picking one of many insurance policies on offer. The minimum amount that you can invest in a PPF account is Rs. 500 and you can invest up to Rs. 70,000 in one financial year. All banks provide this facility and PPF is a safe and painless way to save long term. It comes in handy as a tax saving tool too.

Both Mutual Funds and Equity investments are attractive as they offer good return potential. Though one can do this online, it is recommended that you go with a broker to help you decide. It will save you the time and get you better returns. See if you can spot someone your family knows back home and use their services.

While on Mutual Funds – remember that here too we can have both short term and medium term possibilities. The debt and equity funds will fit the medium term needs.

As an NRI, you can subscribe to new issues of shares and convertible/nonconvertible debentures by Indian companies. However, to buy in the secondary market you need to go through the Portfolio Investment scheme offered by Banks.

If you are looking to making a bigger investment, remember that NRIs are permitted to invest in partnerships or proprietary concerns in India. You can also invest in Indian schools and colleges. Investments in real estate would also be a smart choice, as property rates in India are on the rise.

If you are risk averse, then another option will be Fixed Deposits in Banks, which are very safe and yield up to 7% interest annually.

The options are many but please ensure compliance with related regulations while making investments and do monitor your portfolio regularly.

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