Mutual Funds could be your best option

The stock market is suddenly looking up with sensex breaching the 15,000-mark. Not surprising, so-called market experts are also back in action. Some predict a turnaround may be just around the corner. Others claim that investors can safely bet on stocks if they are prepared to wait for at least two years. And almost everyone is sure of handsome returns from the stock market once again.
However, there is a small problem. Most potential investors don’t have a clue on how to go about investing in the stock market. After all, only a small percentage actually opts for investments in stocks. If you are among the novices waiting to test the waters, here’s the scoop: just hire a brilliant stock market investor.
No, don’t worry. This tie-wearing expert won’t charge you a bomb for fee. You also don’t have to pledge lakhs of rupees to hire his service. All you need is small change. Even an investment of as little as Rs 100 a month would do. Surprised? Don’t be. We are speaking about hiring the service of a mutual fund (MF) manager to take care of your investments in stocks.
Here is how it works. An MF actually collects money from a pool of investors and puts the money in stocks on their behalf for a small fee (1.5-2% annually). An investor has the option of a variety of debt schemes (that invest in fixed income instruments) and/or equity schemes (that go for stocks). The only difference is that unlike in a portfolio management scheme, where one has the option of setting his or her own parameters, here an investor has to choose a scheme with pre-set parameters that will match his investment objective.
According to experts, investing in an MF scheme is a win-win situation for the retail investor as most of them are not well-versed in the working of the stock market. “For most people, the stock market is still an unsolved puzzle. They get scared when the market goes up and they are equally scared when there is continuous slide," says a wealth manager in a bank.
Also since most people don’t have the expertise or time to monitor stocks on a regular basis it is better to give the responsibility of taking the investment decisions to a professional fund manager. This will ensure that emotions don’t dictate the buying and selling of stocks.
Another reason why you should opt for an MF scheme is that it is the most effective way to diversify your portfolio. Sure, one can argue that these days there is a choice of buying a single share of a company and so it is easy to diversify across stocks and sectors.
Experts believe that MFs do a better job of itThere is no point in diversifying if you really don’t have a proper view. A fund manager would be in a better position to take a call on various sectors as he has a large team of research professionals to help him.
The most important aspect of investing via MFs is the convenience. For example, one can start investing with as little as Rs 100 a month in an equity scheme. Also, one can enter and exit a scheme at any time, as most of them (called open-ended schemes) permit that.
Additionally, they also offer tax benefits. For example, if you hold equity schemes for over a year, you qualify for long-term capital gains tax, which, at present, is nil. Always check the reputation of the fund house first. The next should be to review the performance of the scheme at least for three years.
Make sure that the scheme has performed well during the boom as well as bear phase. This would give you a fair idea about the investing skills of the fund manager.

Post Office Monthly Income Scheme

Only scheme in Post office where monthly interest is payable.
Suitable scheme for senior citizens and for those who need regular monthly income.
Interest rate of 8% per annum payable monthly.
Maximum amount is Rs.4.5 lacs in single account and Rs. 9 lacs in a joint account.
Maturity period is 6 years.
Facility of automatic credit of monthly interest to saving account if accounts
are at the same post office.
Facility of premature closure of account after one year @2% discount.
After three years with 1% deduction
Transferability
Account is transferable from one post office to any Post office in India free of cost.
Nomination facility available.
Income Tax
Rebate under section 80 C not admissible.
Interest income is taxable, but no TDS
Deposits are exempt from Wealth Tax

Senior Citizen Saving Scheme

Tenure of the scheme - 5 years which can be extended by 3 more years.
Rate of interest - 9 per cent per annum.
Frequency of computing interest - Quarterly.
Taxability - Interest is fully taxable.No income tax / wealth tax rebate is admissible under the scheme. The prevailing income tax provisions shall apply .The tax will be deducted at source
Investment to be in multiples of - Rs. 1000/-
Maximum investment limit - Rs. 15 lakh
Minimum eligible age for investment - 60 years (58 years for those who have retired on superannuation or under a voluntary or special voluntary scheme). The retired personnel of Defence Services (excluding Civilian Defence Employees) shall be eligible to invest irrespective of the age limits subject to the fulfillment of other specified conditions
Premature withdrawal facility - Available after one year of holding but with penalty
Transferability feature - Not transferable to others
Tradability - Not tradable
Nomination facility - Nomination facility is available
Modes of holding - Accounts can be held both in single and joint holding modes. Joint holding is allowed but only with spouse
Applicability to NRI, PIO and HUFs - Non resident Indians, Persons of Indian Origin and Hindu Undivided Family are not eligible to open an account under the scheme.
Transferability - Transfer of account from one deposit office to another in case of change of residence is permitted.

Is this the right time to buy an apartment?

What was happening?

Home owners were postponing purchase decisions since most of them were priced out, especially since 2005. In simple words they were not finding a property within their budget because the supply that was coming into the market, especially after 2005, was catering to the high end segment. Interest rates on home loans started rising after hitting a low of around 7.5 % in mid 2004. High interest rates meant you had to pay a higher price for your loan. According to a study when interest rates hit a low, around 39% of an individual’s monthly income used to go towards servicing the EMI, after 2005 this figure shot up to around 54 %.
In 2008 the sector which was already batting high property costs and high interest rates, received a big blow from negative sentiments and insecurity among prospective homebuyers about their future earnings. While the above mentioned reason has forced likely home buyers to postpone purchases, developers too were in a spot. Their major problem was liquidity, regular sources of funds –banks, IPOs and private equity had dried up for them. Sales too had taken a severe hit since Jan 2008.

Come 2009..
Prices have come down from 15-30% all across the country. Moreover the concentration on building small more efficient houses just adds the affordability. Top that with SBI’s lead gesture to bring down home loan rates to 8%(even though it is for one year only ) and government directive to include housing sector in priority sector lending category.

So should I buy now?

Yes, this is a good time to buy. Interest rates have almost bottomed out (only to be further harden by the end of the year which will raise home loan prices too) So take advantage of that builders are offering to clear inventory & a home loan from SBI or other public sector banks and I think you’ve got a good deal.

Should I sell my apartment now?
You should sell if you had invested in that property purely for investment reasons. Realty has stabilized so no more abnormal gains in the next 3 years. Many investors are trying to pull out of their investments. Most are not finding buyers at a price that they think is fair value of their property.

If you had entered the real estate market to make quick money there is no point hanging around any longer. Even if you had invested for the medium term but are facing liquidity pressures, it is better to find a buyer and pull out. However if there is no compelling reason for you to pull out, it is a better idea to stay invested for the medium to long term, preferably more than 5 years. Also remember the returns from real estate are second only to equity.

Once you are sure you want to sell, get a fix on the price. Buyers are very sensitive about the price. Get an idea of the recent sale price in the locality of your property for similar property. Get an idea of how much prices have fallen since Jan 08 and factor in the correction. Be flexible during negotiations process. Keep in mind that your money is locked in the house (which you don’t need and keep in mind that money has opportunity cost!) so liquidate it and use it for investments or paying off liabilities. If your loan is still running and you wish to sell the house, you will have to involve the loan provider in the process.
If you are not flexible about your price expectations prospective buyers who could have bought your property will move away to mid income and low income segments. The best way to market the property is to list it in the many realty portals available like magic bricks.com, makaan.com, 99acres.com.You could contact your local broker but his reach will be limited and commission could be as high as 1 % of the sales price.

What about unfinished construction?
Visit the site regularly to check if construction is still on. If construction is on full swing, do not stop the regular checks. However if construction has stopped on the site then take up the matter with the developer. Take along like minded people who have also invested in the same project. If the developer does not listen to you, approach the local body of developers. Most forward looking bodies will help you... However if the matter does not get resolved at this level either, approach the consumer court. In numerous instances, consumer courts have taken the developers to task for delay in projects.

Whatever happens don’t worry even if the prices are down right now you will still stand to gain if you have invested for the medium to long term, because the present slowdown is, after all, a cyclical phase.


Comments, views and suggestions are most welcome....

Indian financial environment turning favourable


The Indian stock market rallied due to institutional buying while also tracking the rise in global equities. We have also witnessed an improvement in data from consumer linked sectors like cement, autos and steel, though this may not necessarily point to a reversal in trend. India continues to be a largely domestic economy strengthened by its large base of public sector employees and rural population.

This and the country’s demographic advantage would be the key drivers of the Indian economy over the long term. In the short term however, markets would continue to track signals from domestic consumer linked sectors as well as other global macro-economic data.

The quarterly results to be announced in April could be muted as we are in the midst of a cyclical compression in earnings and might see this trend continuing in the coming fiscal year. Besides this, near term events like G-20 meeting and the outcome of the general elections are to likely influence the direction of the market. Meanwhile, the Reserve Bank of India will continue to exert downward pressure on interest rates in order to spur demand.

India’s expected GDP growth of approximately 5.0%-6.0% p.a. over the next two years continues to be attractive relative to the slowdown in global economies. While equity markets could witness some volatility due to the general elections and a slowdown in demand, the trend of reducing interest rates and relatively high GDP growth rates should have a positive long term impact

My perception has been that at 8,000 levels, the Indian market is very, very attractive from an investor point of view. If we believe EPS estimate, in the worst case scenario, comes out around 812-815. We are at the bottom of the earnings cycle and a falling interest rate scenario, so India should not trade below 10PE. So we have touched the bottom.

When the market went from 17,000 to 20,000, it was overshooting. In the fall, it is undershooting. I think 8,000 is the bottom of the Indian market. The risk reward for an investor at 8,000 is very favourable. This is not the time for investors to go into a shell and say that the market may come down to 5,000 levels so let's wait.

Biggest lesson in down trend that “back to basics” always helps. In the ecstasy we were all carried away by the India growth story and FII inflows. So the market was actually chasing liquidity. I find that value investing really works. It may be painful in the short term, but it stands when investing for the long term.

Section 80 C tax saving instruments

SECTION 80C lists down the instruments, which you can invest in order to save tax.

You can invest a maximum of Rs 1 lakh in all these instruments put together and the entire amount of Rs 1 lakh will be deducted from your taxable income.

You can get a deduction for the following investments you make:

1. A life insurance policy or a unit-linked insurance plan (ULIP). The lock-in period for ULIPs is between 3 to 5 years and the returns vary depending on the performance of your fund.

However, if your annual premium exceeds 20 per cent of the sum assured on your policy, you will not get the tax benefit.

2. A retirement benefit plan offered by mutual funds. Examples are the UTI Retirement Benefit Plan and Templeton India Pension Plan.

3. A Provident Fund, provided that the fund is covered under the Provident Fund Act. This would mean investments made by you through salary deduction in the Employees Provident Fund (EPF) account as also investments that you make directly in the Public Provident Fund (PPF). You can invest up to Rs 70,000 in the PPF. The current rate of return on EPF is 8.5 per cent while that on PPF is 8 per cent.

4. An approved superannuation fund. Usually your employer, on behalf of you, does this by deducting the investment amount from your salary.

5. National Savings Certificates (NSCs).

6. Equity Linked Savings Scheme (ELSS) offered by mutual funds.

7. Pension policies offered by insurance companies where benefits were earlier available under section 80CCC. Earlier, there was a limit of Rs 10,000 on such investments; however that ceiling has now been removed.

8. Bank fixed deposits that provide the Section 80C tax benefit. They come in with a lock-in of 5 years.

Apart from the investments mentioned above, you can also get a deduction on certain expenses that you incur. Mainly, these include the principal repayment on your home loan and the tuition fees you pay on your children’s education.

Public Provident fund

PPF was established by the central government in 1968 & very safe since it is backed by the government. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India.

• Minimum Amount

The minimum amount you have to put into your PPF account in a year is Rs 500. The maximum you can put is Rs 70,000 per year. But one deposit with a minimum amount of Rs.500/- is mandatory in each financial year.

The deposit can be in lump sum or in suitable installments, but not more than 12 Installments in a year or you cant make two installments in a month subject to total deposit of Rs.70,000/-.

It is not necessary to make a deposit in every month of the year. The amount of deposit can be varied to suit the convenience of the account holders.

The deposits should be in multiple of Rs.5/- subject to minimum amount of Rs.500/-.

The deposit in a minor account will be clubbed with the deposit of the account of the Guardian for the limit of Rs.70, 000/-.

No age is prescribed for opening a PPF account.

• Want to buy?

The Account can be opened by an individual or a minor through the guardian. But joint account is not permissible.

Those who are contributing to GPF Fund or EDF account can also open a PPF account.

A Power of attorney holder can neither open nor operate a PPF account.

The grand father/mother cannot open a PPF behalf of their minor
grand son/daughter.

The PPF scheme is operated through Post Office and Nationalized banks.

PPF account can be opened either in Post Office or in a Bank.

• Duration

The Scheme is for 15 years.

The account in which deposits are not made for any reasons is treated as discontinued account and such account can not be closed before maturity.

The discontinued account can be activated by payment of minimum deposit of Rs.500/- with default fee of Rs.50/- for each defaulted year.

The facility of first withdrawal is available in the 7th year of the account subject to a limit of 50% of the amount at credit preceding three year balance. Thereafter only one Withdrawal in every year is permissible.

The account holder has an option to extend the PPF account for any period in a block of 5 years on each time.

The account holder can retain the account after maturity for any period without making any further deposits. The balance in the account will continue to earn interest at normal rate as admissible on PPF account till the account is closed.

One withdrawal in each financial year is also admissible in such account.

• The rate of interest is 8% compounded annually.

Interest is not contractual but rate is notified by Ministry of Finance, Govt. of India, at the end of each year.

Let's say on April 1, 2008, you invested Rs 50,000 in PPF and the same amount in NSC. On April 1, 2009, your PPF account will have Rs 54,000

• Income Tax

This investment falls under Section 80C. That means the investment is made under this section are eligible for an income deduction up to a maximum Rs 1, 00,000.

The interest on deposits is totally tax free.

Deposits are exempt from wealth tax.

The balance amount in PPF account is not subject to attachment under any order or decree of court in respect of any debt or liability.

• Transferability

Pre-mature closure of a PPF Account is not permissible except in case of death.

Nominee/legal heir of PPF Account holder on death of the account holder can not continue the account, but account had to be closed.

Account is transferable from one Post office to another and from Post office to Bank and from Bank to Post office.

Account is transferable from one Bank to another bank as well as within the bank to any branch.

Nomination is the facility available.

National Savings Certificate

The National Savings Certificate -- popularly referred to by its acronym NSC, this is a post-office savings scheme. Backed by the government, it is one of the safest investment options.

• Minimum investment

Minimum investment is Rs. 500/- with No upper or maximum limit.

NSC is sold in denominations of Rs 100, Rs 500, Rs 1,000, Rs 5,000 and Rs 10,000. So, if you want to invest Rs 50,000, you will have to buy five certificates of Rs 10,000 each.

·         Want to buy?

You can either hold an NSC certificate jointly with someone or An Individual as well as a minor through guardian can purchase. However Companies, Trusts, Societies Non-resident Indian/HUF and any other Institutions not eligible to purchase.

And since it is a post office savings scheme, you can just approach any post office.

• Rate of interest 8% compounded half yearly.

Rate of interest 8% compounded half yearly. Let's say on April 1, 2008, you invested Rs 50,000 in NSC. On April 1, 2009, your NSC account would be worth Rs 54,080

If the rate of interest was compounded just once a year, it would be Rs 79,343.72 on maturity after six years. But, since it is compounded twice annually, it will be Rs 80,051.61.

·         Income Tax

When you invest in NSC, you get a deduction under Section 80C of the Income Tax Act. This is up to a limit of Rs 1, 00,000 and includes your investment in the Employees Provident Fund and Public Provident Fund, life insurance premium payments as well as principal repayments on your home loan.

It is being Tax Saving instrument the Rebate admissible under section 80 C of Income Tax Act.

 

Interest on NSC is taxable under the head 'Income from other sources'.

Generally, it is advisable to declare accrued interest on NSC on a yearly basis. So, over the period of six years, you could declare the interest income for each year. In such cases, it does not amount to a huge sum.

If you do not declare the interest on an accrual basis, then the entire interest earned (difference between the amount deposited and the maturity value) would accumulate in the year of maturity. You could then claim it under Section 80C, but it would be a huge amount and would be taxable at the current applicable tax rate.

Annual interest earned is deemed to be reinvested and qualifies for tax rebate for first 5 years under section 80 C of Income Tax Act.

 

Maturity proceeds not drawn are eligible to Post Office Savings account interest for a maximum period of two years.

 

Interest income is taxable but no TDS

 

Deposits are exempt from Wealth tax.

Facility of reinvestment on maturity is available.

·         Duration

Your money stays invested for six years from the date of investment

Certificates are encashable any Post office in India before maturity by way of transfer to desired post office.

Certificate can be pledged as security against a loan to banks/ Govt. Institutions.

Facility of encashment of certificates is available through banks.

But there is No pre-mature encashment available.

·         Transferability

Certificates are transferable from one Post office to any Post office.

Certificates are transferable from one person to another person before maturity.

Duplicate Certificate can be issued for lost, stolen, destroyed, mutilated or defaced certificate.

Nomination facility available.

Facility of purchase/payment to the holder of Power of attorney.