Tagged: Fixed Deposit

NTH :: SBI raises interest rates on bank FD and home loans: What should you do?

After a few hikes in marginal cost based funding rate (MCLR) by some banks in past two months, banks first raised the rates on bulk deposits.
Nikhil Walavalkar | Mar 01, 2018 01:13 PM IST | Source: Moneycontrol.com

NTH

The largest public sector bank in India – State Bank of India – has decided to increase the interest rate payable on retail deposits, followed by an increase in MCLR (marginal cost of funds-based lending rate) – the rate charged on loans – by up to 20 basis points. As the largest lender revises its interest rates, should you be worried with your financial plan?

Before getting into corrective measures and means to exploit the rate action, you should spend a minute understanding why rates have gone up.

“Towards the end of the financial year the liquidity in the market has gone down. The banks are keen to raise money. The rates are hiked as a lagged response to the rising bond yields,” said Mahendra Kumar Jajoo, head – fixed income, Mirae Asset Management.

For the uninitiated, the benchmark 10-year bond yield has moved up to 7.78 percent from a low of of 6.18 percent on December 7, 2016.

Banks typically take time to raise their fixed deposit rates. After a few hikes in MCLR by some banks in past two months, banks first raised the rates on bulk deposits. Now interest rates on retail fixed deposits are being hiked. This is a sign of relief for most fixed deposit investors who were forced to consider investing in the volatile stock markets through mutual funds.

Though the interest rate hike on fixed deposits is good news for conservative investors, one should not expect fireworks in the form of aggressive rate hikes in near future.

“As of now the liquidity tightening is the cause behind the fixed deposit rate hikes. RBI has maintained its neutral stance on the monetary issues. This may change to hawkish over next six months,” said Joydeep Sen, founder of wiseinvestor.in, a Mumbai-based wealth management firm.

Though the interest rates are set to go up and others are expected to follow SBI, the process of rate hikes will be gradual. “Bank fixed deposit investors may see higher rates over next six to twelve months. You can consider opting for six months to one year fixed deposits and rolling it over at higher rates when they mature,” Sen advised.

Rising interest rates, however, ring alarm bells for both bond fund investors and borrowers. The increase in yield suppresses the prices of bonds and thereby hurts investors in bond funds as net asset values of the bond funds go down. Recent spike in bond yields have taken a heavy toll on bond funds. Long term gilt funds lost 2.1 percent over past three months, on an average.

The prevalent bond yields are a result of the market discounting RBI’s hawkish stance one year down the line, according to experts. Although opinions are divided on the extent of a further surge in yields, there seems to be a consensus when it comes to volatility in the bond market.

If you are not comfortable with the volatility, you should stay away from long-term bond funds and income funds that invest in longer-term paper.

“Short term bond funds are good investment option at this juncture as they invest in bonds maturing in two to three years, where the yields are attractive,” said Jajoo. If you are comfortable with some amount of volatility and expect a sideways move in yields, you may consider investing in income funds and dynamic bond funds.

While fixed income investors see a mixed bag in the rising interest rate regime, borrowers, especially those on floating rate liabilities, are expected to see tough times ahead. The banking sector is undergoing a situation of extreme pressure on margins due to an increase in non-performing assets like never before.

The rise in yields and fixed deposit rates will ensure that banks will be forced to raise their MCLR. This will result in an increase in the floating rate for home loan borrowers. For example, if you have a Rs 50 lakh home loan for 15 years and the rate is hiked to 8.45 percent from 8.25 percent, then the EMI changes to Rs 49,090 from Rs 48,507, an increase of Rs 583. You may ascertain the possible impact on you using EMI calculator.

“Other banks will definitely follow the MCLR hike action of SBI. The rates on home loans may be hiked by the end of this month or in early April,” said Sukanya Kumar, founder of RetailLending.com.

Banks may postpone their rate hikes to attract home loan volumes and close the financial year with good numbers. But home loan borrowers should be prepared to pay higher EMIs in the near future.

Rates will be revised depending on the MCLR time frame. For example, if your home loan is linked to 6-month MCLR, you can expect rates to change after six months from the last reset. The 6-month MCLR prevalent at that time will be applicable to your home loan at the time of reset.

If interest rates continue their journey northward, cash flows do change for you. Account for them well in advance to ensure that you do not get caught off guard.

Source: https://goo.gl/RbU7Gt

ATM :: How does an urban internet user in India save and invest?

Find out in the ET Wealth RICS report
Updated: Dec 16, 2016, 05.37 PM IST | Economic Times

ATM

ET Wealth Survey Series is an effort to bridge the gap between industry, marketers and consumers. It is a well-researched effort to identify the vacuum that exists in the consumer personal finance space. With ET Wealth Surveys, we want you to know better how your audience earns, spends, invests and saves.

Of the universe of 156 million urban internet users, given here is the estimated size of each investment product:

How does an urban internet user in India save and invest? Find out in the ET Wealth RICS report

Source: https://goo.gl/4OAVLI

ATM :: Should young earners take their parents’ advice while investing?

By Jayant Pai | Jun 20, 2016, 07.00 AM IST | Economic Times

ATM

Every parent fondly looks forward to the day when children will begin earning a steady income. However, for Indian parents, it is difficult to sever the metaphorical umbilical cord even after their child secures financial independence.

There are various reasons parents do not shy away from advising their children on money matters. One, they feel that their naive children will be parted from their money if left to their own devices. Hence, right from the first payday, they will tell you about the virtues of saving and warn against reckless spending. Two, they do not want their children to make the same mistakes they made, be it a failed investment or a loan to a friend which was never returned. Three, errors of commission committed by close family members also play a part in conditioning parents’ thought process.

Why such advice may be less effective today: The previous generation was brought up on the belief that the collective wisdom of elders was indispensable. Today’s generation is a bundle of contradictions. On the one hand, they are avowedly individualistic. On the other, they are swear by the opinions of peers in social media on every topic, be it fashion, electronics or money. Hence, parental influence is waning.

While every generation thinks it knows best when it comes to finance and investments, today’s youngsters have more educational and decision-making tools at their disposal. These may be in the form of blogs, apps, portals and even robo-advisers/algorithms. In fact, they face a glut, rather than a drought, of information. Hence, parents may often be behind the curve.

Today, wealth managers are increasingly viewing such youngsters as an economically viable segment. Hand-holding newbies, with the hope of growing with them as they uptrade, is a strategic choice.

Should children listen to their parents? In most cases, the advice received from parents is well-meaning. That may not necessarily be true in case of advice from outsiders. However, good intentions alone are not sufficient to render it suitable. While certain home truths like avoiding borrowing for consumption or maintaining a high savings rate are worth heeding, others are better ignored.

For instance, many parents dissuade their children from investing in stocks and suggest they opt for fixed deposits or gold. This may stem either from their own poor experience in the stock market or a belief that stocks are risky and another form of gambling. However, by blindly heeding such advice, youngsters may do themselves a great disservice since they forego the power of compounding that equities offer.

Similarly, parents may consider real estate as a great investment option even if they have to avail of a heavy mortgage. Children should follow such advice only after considering the repercussions of paying EMIs for long tenures of 25-30 years. Also, some parents are averse to their children purchasing insurance policies, fearing that this is an invitation to disaster. Such superstitions should not stand in the way of protecting life, limb and health. In a nutshell, when it comes to parental advice, trust them, but verify the advice.

(By Jayant Pai, CFP & Head, Marketing at PPFAS Mutual Fund)

Source : http://goo.gl/iECSwU

ATM :: Mistakes to avoid in tax saving investment rush before March 31

By Babar Zaidi, ET Bureau | Mar 14, 2016, 10.30 IST | Economic Times

ATM

The 31 March deadline is barely two weeks away, but many taxpayers are yet to sew up their tax planning for the year. Either they were unfamiliar with the tax rules, confused by the array of options or just plain lazy. Whatever be the reason, they are now sitting ducks for unscrupulous distributors and financial advisers who capitalise on the approaching deadline and palm off high-cost investments to unsuspecting investors.

This week’s cover story is aimed at taxpayers who still have to invest under Section 80C. As a first step, calculate how much more you need to invest. Many taxpayers don’t know that tuition fees of up to two children is eligible for deduction under Section 80C. For many parents with schoolgoing children, this takes care of a large portion of their tax-saving investment limit.

Also, the principal portion of the home loan EMI and the stamp duty and the registration charges paid for a house bought during the year are all eligible for the deduction. If they include the contribution to the Provident Fund and premiums of existing insurance policies, they might discover that their tax planning is nearly taken care of. Use the table provided to calculate how much more you need to invest this year.

Mistakes to avoid in tax saving investment rush before March 31

 

Put small amount in ELSS
Your approach now should be different from what we advised earlier this year. In January, we had listed ELSS funds as the best tax-saving instrument. They are low on charges, fairly transparent, offer high liquidity, the returns are tax-free and they have the potential to create wealth. Also, you are under no compulsion to make subsequent investments. Investing in ELSS funds is easy because you can apply online. Many fund houses even pick up KYC documents from your residence. You can also get your KYC done online.

Mistakes to avoid in tax saving investment rush before March 31

However, at the same time, studies have shown that a staggered approach works best when investing in equity funds. It’s too late to take the SIP route in March and investing a large sum at one go can be risky. Investors who took the SIP route in top ELSS funds in 2014-15, have made money, but those who waited and invested lump sum in March 2015 are saddled with losses.

Unfortunately, not many investors understand the simple logic behind SIPs. Barely 15% of the total inflows into the ELSS category comes through monthly SIPs and nearly 25% of the total inflows are invested as lump sum in March. We suggest that you avoid putting a large sum at one go in ELSS funds and put only a small amount at this stage. It’s best to start an SIP after April in a scheme with a good track record.

Mistakes to avoid in tax saving investment rush before March 31

PPF and FDs are safe bets 
Unlike the ELSS funds, you can invest blindly in the PPF. If you already have a PPF account, just put the remaining portion of your Section 80C limit in it and be done with it. Opening a new account at this stage may not be feasible if you have to submit the proof of investment this week. Even if you manage to open an account, you will be cutting it too fine. If your investment cheque is not encashed by 31 March due to any reason, you may be denied the deduction for this year. Some banks like ICICI Bank allow online investments in the PPF, which is a better option than the offline route.

If you don’t have a PPF account, go for tax-saving fixed deposits or NSCs. They did not score very high rank in our ranking of tax saving instruments in January because the interest is fully taxable, which brings down the effective post-tax returns in the 30% tax bracket to less than 6%. However, with just two weeks left to go, they could be good options to save tax in a hurry. Sure, you will earn low returns, but there are no hidden charges or any compulsion to invest in subsequent years.

They will push you to buy insurance policies that can become millstones around your neck. Don’t sign up for insurance policies in a hurry. To make things easier for the buyer, the agent even does the paperwork. All the buyer has to do is sign the application form and write a cheque. But any investment that requires a multi-year commitment must be assessed in detail, so don’t let the agent force you into a decision.

In our January ranking, life insurance policies were at the bottom of the heap. Experts say it is not a good idea to mix insurance with investment. Buy a term plan for insuring yourself and invest in other more lucrative options than a traditional insurance policy that offers 6-7% returns. A costly insurance policy prevents you from investing for other goals. If you are paying a very high premium, it is advisable to turn the policy into a paid up plan. The insurance cover will continue but you can stop paying the premium.

Pension plans from insurance companies also rank very low. Even though 33% of the corpus was tax free on maturity, the low-cost New Pension System (NPS) was seen as a better alternative. Last year, the government announced an additional deduction of Rs 50,000 for investments in the NPS. This year’s Budget has made the scheme more attractive by making 40% of the corpus tax free on maturity.

Till a few months ago, opening an NPS account was considered an uphill task. You had to run around for weeks, even months, before the account became operative. This has now changed. Turn to Page 6 to know how you can take the online route to open an NPS account in just 25-30 minutes.

No proof? No problem

Salaried taxpayers are expected to submit proof of investment to their employers by mid-March. That window is nearly closed now. If you have not submitted the proof of your tax saving investments, TDS will be deducted from your March salary. But don’t let that stop you from investing now. If you are able to invest by 31 March, you can claim a refund of the excess tax deducted from your salary. However, you will get that money back only when you file your tax return in July.

Source : http://goo.gl/gZZqCR

ATM:: 9 smart ways to save tax

Babar Zaidi | TNN | Jan 11, 2016, 08.57 AM IST | Times of India

ATM

Do-it-yourself tax planning can be rewarding and challenging. Rewarding, because you can choose the tax-saving instrument that best suits your needs. Challenging, because if you make the wrong choice, you are stuck with an unsuitable investment for at least 3-5 years. This is where our annual ranking of best tax-saving options can prove helpful. It assesses all the investment options on seven key parameters—returns, safety, flexibility, liquidity, costs, transparency and taxability of income. Each parameter is given equal weightage and a composite score is worked out for the various tax-saving options.

While the ranking is based on a robust methodology, your choice should also take into account your requirements and financial goals. We consider the pros and cons of each option and tell you which instrument is best suited for taxpayers in different situations and lifestages. We hope it will help you make an informed choice. Happy investing!

ELSS FUNDS
ELSS funds top our ranking because of their tremendous potential, high liquidity and transparency. The ELSS category has given average returns of 17.8% in the past 3 years. The 3-year lock-in period is the shortest for any Section 80C option.

If you have already fulfilled KYC requirements, you can invest online. Even if you are a new investor, fund houses facilitate the investment by picking up documents from your house and guiding you through the KYC screening. ELSS funds are equity schemes and carry the same market risk as any other diversified fund. Last year was not good for equities, and even top-rated ELSS funds lost money. However, the funds are miles ahead of PPF in 3- and 5-year returns.

The SIP route is the best way to contain the risk of investing in equity funds. However, with just three months left for the financial year to end, at best, a taxpayer will manage 2-3 SIPs before 31 March. Since valuations are not stretched right now, one can put in a bigger amount.
SMART TIP
Opt for the direct plan. Returns are higher because charges are lower.

ULIP
The new online Ulips are ultra cheap, with some of them costing even less than direct mutual funds. They also offer greater flexibility. Unlike ELSS funds, where the investment cannot be touched for three years, Ulip investors can switch their corpus from equity to debt, and vice versa. What’s more, there is no tax implication of gains made from switching because insurance plans enjoy exemption under Section 10 (10d). Even so, only savvy investors who know how to use the switching facility should get in.
SMART TIP
Opt for liquid or debt funds of the Ulip and gradually shift the money to the equity fund.

NPS
The last Budget made the NPS attractive as a tax-saving tool by offering an additional tax deduction of Rs 50,000. Also, pension fund managers have been allowed to invest in a larger basket of stocks.

Concerns remain about the cap on equity exposure. Besides, the taxability of the NPS on maturity is a sore point. At least 40% of the corpus must be put in an annuity. Right now, the income from annuities is taxed at the normal rate.
SMART TIP
Opt for the auto choice where the equity exposure is linked to age and comes down as you grow older.

PPF AND VPF
It’s been almost four years since the PPF rate was linked to the benchmark bond yield. But bond yields have stayed buoyant and the PPF rate has not fallen. However, the government has indicated that it will review the interest rates on small savings schemes, including PPF and NSCs. If this is a worry, opt for the Voluntary Provident Fund. It offers that same interest rate and tax benefits as the EPF. There is no limit to how much you can invest in the VPF. The contribution gets deducted from the salary itself so the investor does not even feel it go.
SMART TIP
Allocate 25% of your pay hike to VPF. You won’t notice the deduction.

SUKANYA SAMRIDDHI SCHEME
This scheme for the girl child is a great way to save tax. It is open only to girls below 10. If you have a daughter that old, the Sukanya Samriddhi Scheme is a better option than bank deposits, child plans and even the PPF account. Accounts can be opened in any post office or designated branches of PSU banks with a minimum Rs 1,000. The maximum investment in a financial year is Rs 1.5 lakh and deposits can be made for 14 years. The account matures when the girl turns 21, though up to 50% of the corpus can be withdrawn after she turns 18.
SMART TIP
Instead of PPF, put money in the Sukanya scheme and earn 50 bps more.

SENIOR CITIZENS’ SCHEME This is the best tax-saving instrument for retirees. At 9.3%, it offers the highest interest rate among all Post Office schemes. The tenure is 5 years, extendable by 3 years. Interest is paid quarterly on fixed dates. However, there is a Rs 15 lakh overall investment limit.
SMART TIP
If you want ot invest more than Rs 15 lakh, gift the amount to your spouse and invest in her name.

BANK FDS AND NSCs
Though bank FDs and NSCs offer assured returns, the interest earned on the deposits is fully taxable. They are best suited to taxpayers in the 10% bracket or senior citizens who have exhausted the Rs 15 lakh limit in the Senior Citizens’ Saving Scheme.
SMART TIP
Invest in FDs and NSCs if you don’t have time to assess the other options and the deadline is near.

PENSION PLANS
Pension plans from insurance companies still have high charges which makes them poor investments. They also force the investor to put a larger portion (66%) of the corpus in an annuity. The prevailing annuity rates are not very attractive. Pension plans launched by mutual funds have lower charges, but are MFs disguised as pension plans. Moreover, they are debtoriented plans so they are not eligible for tax benefits that equity plans enjoy.
SMART TIP
Invest in plans from mutual funds. They offer greater flexibility than those from life insurers.

INSURANCE POLICIES
Traditional life insurance policies remain the worst way to save tax. Still, millions of taxpayers buy these policies every year, lured by the “triple benefits” of life insurance cover, longterm savings and tax benefits. Actually, these policies give very little cover. A premium of Rs 20,000 a year will get you a cover of roughly Rs 2 lakh. The returns are very poor, barely 6% if you opt for a 20-year plan. And the tax-free income is a sham. Going by the indexation rule, if the returns are below the inflation rate, the income should anyway be tax free. The problem is that once you sign up for these policies, they become millstones around your neck.
SMART TIP
If you can’t afford to pay the premium, turn your insurance plan into a paid-up policy.

Source: http://goo.gl/DWqo4K

ATM :: Are Indians retiring poor?

Rajeshwari Adappa | Tuesday, 24 November 2015 – 6:50am IST | Agency: dna | From the print edition
Defensive investment strategy of choosing secure and safe investments over riskier ones give lesser returns in the long run. The allocation to FDs and gold is much higher in India when compared to developed countries and the ownership of equities is very low. To get more bang for their buck, investors need to change their investment strategy as a few decades back, there were not many alternatives and inflation was not a known devil

ATM

For the same corpus invested in retirement funds, Indians make lesser money than their western counterparts.

Yogitaa Dand, financial advisor (associated with DSP BlackRock’s Winvestor initiative for women) says, “Yes, I do agree that Indians are not earning as much as they should from their investments, and hence, they do retire poorer than their foreign counterparts.”

“The reasons are manifold. However, the two distinctive reasons are that till date Indians have always given least priority to their retirement corpus and the greatest priority to the education of their children,” says Yogitaa.

Thus, Indians end up dipping into their nest egg, reducing the corpus considerably.

“Secondly, they have been more conservative in their investments, choosing secure and safe investments over riskier ones, which would otherwise have given them better returns in the long run,” adds Yogitaa.

A leading fund manager blames the “limiting thought process” for the comparatively poorer returns on investments. Indians use a ‘defensive’ investment strategy that lays too much stress on the ‘safety’ aspect.

“While we Indians have been very smart savers, unfortunately, we have not been the best of investors with our focus being on secure and assured return vehicles, eventually giving us lower returns,” says Yogitaa.

According to Vaibhav Agrawal, VP & head of research, Angel Broking, the reason for the lower returns on investments is that “the allocation to fixed deposits and gold is much higher in India when compared to developed countries. Also, the ownership of equities is very low in India.”

“In the US, the amount invested in equity mutual funds is $8.3 trillion (approx. Rs 550 lakh crore) and the amount in bank deposits is $10.4 trillion (approx. Rs 690 lakh crore). In India, the amount invested in equity mutual funds is Rs 3.8 lakh crore while the amount invested in bank deposits is Rs 89 lakh crore,” points out Agrawal.

Over a long term period, it has been seen that equity investments have given higher returns than bank FDs. “The compounded return from the top 50 schemes of equity MFs is in the region of 14.5% while the post-tax return on FDs is 6.5%,” says Agrawal. Even if one were to invest in the Nifty stocks, the returns would be in the region of 12% without dividend, and with dividend, the returns would be 13.5%.

Certified financial planner (CFP) Gaurav Mashruwala explains the reason for the bias towards FDs and other ‘safe’ investments. “Indians have seen very high interest rates in the past. The PPF fetched a return of 12% while bank FDs earned about 15-16% and company deposits earned even more at 21-22%,” he says.

“We also need to understand that a few decades back, we did not have many alternatives and choices to investments. Also, inflation was not a known devil,” adds Yogitaa.

Another reason for the ‘safe and defensive’ strategy seems to be the lack of a social security system in India. “We can look at NPS as an alternative to the social security system. However, it cannot be a complete substitute to the same,” points out Yogitaa.

But the volatility and unpredictability of the stock markets is the main roadblock in the case of equity investments. “Equity investments need a different mindset, much like that of a businessman,” points out Mashruwala. Not all investors are comfortable with the rollercoaster-like ups and downs of the stock markets.

The good news is that the scenario is changing. “People have started investing more in equities. The psychology of the investor and the regulator too is changing. Even the provident fund money is now being invested in equities,” adds Mashruwala.

If Indians want to get more bang for their buck, they need to change their investment strategy. “A person with a low risk investment portfolio can earn anywhere between 5-8% while a person with medium risk investment portfolio would earn approximately 8-10%. A person with a high risk investment portfolio would earn anywhere between 12-18% on a CAGR basis over a period of time,” explains Yogitaa. After all, risks and rewards are but two sides of the same coin.

Incidentally, Mashruwala is not too concerned about the western counterpart getting higher returns. “Remember, in all probability, the western counterpart also has more debt compared to the average Indian. It is highly likely that the Indian probably owns the house unlike his western counterpart,” says Mashruwala.

Source : http://goo.gl/hHcZR3

ATM :: Overexposure to fixed deposits can hamper long term goals

AYUSH BHARGAVA Financial Planner | Jul 30, 2015, 08.44 PM | Source: Moneycontrol.com
Fixed deposits cannot offer a rate of return in excess of inflation. If you are planning for a long term goal, employ of a mix of both debt and equity

ATM

It was during March – April 2015 when due to second consecutive fall in repo rate, banks started reducing fixed deposit (FD) rates and as a result, conservative investors started locking their money in FD and other debt products. Those who were looking for more returns were also seen investing into corporate FD with poor ratings. FD is one of the most popular products in India. More than half of the total financial saving in India is in the form of FD. Investment in India is not done according to the asset allocation or risk profile of an investor; it is done according to the risk profile of the product. One can often find investors searching for a product wherein savings will be safe and they can earn the maximum rate of return. This usually happens when one is not an expert with different financial products and investors with very little risk taking capacity end up making investment in fixed deposits or other fixed investment products.

Why over exposure in fixed income securities can be risky for long term goals?
Conservative investors should understand that investing only in debt products can result in over exposure in a particular asset class which will not only imbalance the portfolio but will also impact the overall return on investment. Fixed income securities are not capable of beating inflation in long term. Inflation erodes the major part of returns offered by fixed income products and this is the reason why one may not become rich or wealthy. These instruments are also not tax friendly as equity investments are. Interest earned on most of these instruments is taxable. The returns in this product are lower than equity investments in the long term and thus to achieve a particular goal a conservative investor needs to invest more as compared to an aggressive investor.

Let’s understand this with the help of an example – Suppose there are three investors with different risk profile. All of them want to accumulate Rs. 40 Lakh for their children’s graduation which is due after 15 years. They earn Rs. 40,000 per month and save Rs. 6,000 for investment purpose. Let’s see who will be able to achieve the goal.

It is clear from the above example that considering a return of 8% yearly on portfolio, conservative investor will not be able to accumulate the target amount. On the other hand an investor with a balanced view where he invests equally into equity and debt products (12% CAGR) and aggressive investor (considering 15% CAGR) will achieve goals without worrying about inflation and other issues.

Here the right asset allocation is very important. An aggressive investor cannot continue with equity all his life due to volatility factor and in the same manner a conservative investor cannot solely depend upon debt products and should consider tax liability of the product and its implication on future goals. He should consider including equity investment as a part of the portfolio which will help in beating inflation and thus maintaining a proper balance.

During accumulation phase overexposure in any asset class will always result in failure to achieve future goals. Please remember the strategy of having a fixed income focused portfolio will work during distribution phase where security is more important than other things. Even if you are retired and running a fixed income portfolio, it is better to run a portfolio comprising more tax efficient options such as tax free bonds and income funds.

Source : http://goo.gl/8q4n29

ATM :: Applying for a home loan after 45? Do not miss these tips

Adhil Shetty,CEO,BankBazaar.com | MoneyControl
Borrowing after 45 years of age may make the borrower worried about repaying his home loan. However, these tips can help you reduce your anxiety and offer some peace of mind.

ATM

Durgesh, 48, a government employee, was planning to take a home loan. He has only 10 years left in service and his loan requirement was 15 lakhs. He was confronted with a number of questions like any other late loan takers: Am I eligible for the required amount? Will it be difficult for me to manage the higher EMI? Can I continue paying the loan after my retirement, provided I have pension? Can I include my son’s income if I’m not eligible for the loan?

As he thought about it, more doubts surfaced: Should I break my FD to manage the down payment? What should I do to preempt the EMI from becoming a burden? Soon, Durgesh was overwhelmed.

Loans are usually offered so long as one has salary. So, the lesser your service period, the shorter will be your loan tenure, which means EMI burden on you is higher.

A higher EMI has an upside as well as a pitfall. The good news is that your interest outflow will be lesser, as you pay off your loan sooner. The bad news is that your loan eligibility will be reduced and the EMIs can weigh heavily on your personal finances.

Taking the case of Durgesh here, if he takes a loan of 15 lakhs for 10 years at 11% interest rate, his EMI will be around Rs.20663, and he will pay back Rs.25 lakhs. But if he takes the same loan for 20 years, he pays back Rs.37 lakhs in total – a staggering increase of Rs.12 lakhs!

Like Durgesh, many borrowers in the 45-60 age bracket battle many self-doubts when in the market for a home loan. Here are some of them answered.

Am I eligible for the required amount?

Usually loans are offered till you are in service. For example, Durgesh earns a salary of Rs30000. So his loan eligibility for 10 years is 12 lakhs only. But since he is a government employee, he gets pension. He can use part of his pension for loan repayment, and banks too may consider this option. His loan application can be therefore considered for up to 20 years, and he can be offered a higher amount.

Considering his pension will be lesser than his salary, the EMI outflow post retirement will be lesser. This is also called step-down repayment options, as the later EMIs are stepped down here.

Other options for him are to consider his wife or son (if they are employed) as joint applicants. If he is having any additional income like rental income from some any other property, that too can be considered.

Will it be difficult for me to manage the EMI? How should I prevent the EMI from becoming a burden?

In Durgesh’s case, his monthly salary being Rs.30000, it will be difficult for him to service a loan of 15 lakhs. Moreover, he has other expenses to take care of as well, like his down payment and funds for his second son’s higher education.

Durgesh can opt for an accelerated loan repayment option. Under this option, he can choose for a lesser EMI during the initial years. As he works through the loan tenure, the EMI slowly grows with the passing years. However, there are two flip sides to this option.
1) Lesser EMI means more interest outflow
2) Growing EMI means a higher outflow when he is deprived of his salary post retirement

If he plans his repayment smartly, he can opt for an accelerated EMI here, provided he plans to close or make part prepayments on his loan when he gets his gratuity and EPF amount on retirement. This way, the EMIs will not be a burden for him; to curb the interest outflow, he can choose to close down the loan soon he gets retired.

Alternatively, since he has an FD with the same bank, till he retires, he can opt to earn the interest out of it, or opt for a dividend option from some of his MF investments. This means, he gets some additional income every month. And with this additional income, the EMIs will not be a burden for him. If he owns some other property, he can think about renting it out to earn some additional income.

How should I manage the down payment? Should I break my FD to manage it?

The strategy to be adopted is completely based on the financial situation of the individual. However, considering the other expenses one may meet during retirement, breaking an FD is not advisable.

However, there are some alternatives for Durgesh. If he owns some other properties, he can plan on selling it to raise some funds so that he can manage both his son’s education and down payment. If he can afford to pay more EMI, i.e. if he has any passive income, he can plan for a loan against FD, a PF loan or a loan against his insurance policies to raise some funds, so that his temporary financial crunch will be managed. If he is holding some shares, he can plan on selling a couple of them.

Alternatively, instead of taking both the burden of his son’s higher education as well as down payment simultaneously, he can opt for an education loan for his son, so that he needs to worry only about the loan down payment.

If none of the above options work, he can check with his bank if to see if they offer the proportionate release option which can bring down his EMI considerably in the initial few instalments.

Above all these, latecomers on the home loan scene should research their options well. This is because some banks charge a higher fee based on the age of the applicant if they have considered pension income, since this constitutes a risky profile for them.

Source : http://goo.gl/vNmJXD

ATM :: Stealing from your wallet? 7 entrapments from banks that you should be aware of

By Sangita Mehta, ET Bureau | 13 May, 2015, 10.48AM IST | Economic Times

ATM

A bank’s facilities typically come loaded. For the unsuspecting customer, it could just be a question of filling out a fixed deposit form or being granted a home loan. But there are some entrapments the bank will slip in that you need to be aware of, says Sangita Mehta.

HOME LOAN: Double Trouble

Watch out: When you apply for a home loan, the bank will sell you property insurance — which covers damage to property — and mortgage protection term insurance, which covers the loan in the event of the borrower’s death

What you should know: The housing society may already have property insurance. You don’t have to opt for an insurer the bank has a tie-up with. Ensure the premium is not clubbed with the loan, in which case, you will have to pay interest

CREDIT CARD: Take it or Leave it

Watch out: Banks often sell credit cards with the promise that for the first year, they will not charge any fee and the customer can discontinue it from the second year. However, at the end of the second year, the card company sends an innocuous mail stating they will renew the card for a fee unless the customer explicitly rejects it.

What you should know: The Reserve Bank of India has banned banks from giving such negative options. Customers should ideally use the credit card of a bank they do not have a savings bank with. In case of a dispute, banks often debit money from the borrower’s account

DEPOSITS: Auto Route

Watch out: When you’re opening a fixed deposit, watch out for ‘auto renewal’ in the fine print

What you should know: If you do not opt for auto renewal, the money is transferred to the savings account after maturity, where the bank offers about 4% interest as against 7-9% on FDs. You may forget to renew the deposit and the bank won’t remind you. When you tick that ‘auto renewal’ box, the bank cannot charge you a penalty on premature withdrawal of the deposit

ATM, CYBER FRAUD: Cry ‘Thief’

Watch out: If you find a fraudulent transaction in your account, immediately notify the bank

What you should know: If you are the unfortunate victim of an ATM or e-transaction fraud, watch out: the bank is liable to prove its innocence. If the bank is not notified, the maximum loss to you is `10,000 Postnotifi cation, the customer is not liable to bear any cost

LOCKER FACILITY: Keep your Freedom

Watch out: Banks put a price tag on a ‘scarce’ commodity like the bank locker

What you should know: Your bank may ask you to invest in fi xed deposits or mutual funds or even third party insurance, with the bank locker, even though they are not allowed to to do so by the RBI. You anyway need to pay an annual rental

PERSONAL LOANS: Don’t Rush to Pre-pay

Watch out: Banks have stiff conditions on prepayment of personal loans

What you should know: The RBI has mandated banks to not charge a penalty for pre-payment of a home loan if the interest is on a floating rate. But the rule does not apply for other personal loans. Some banks charge as much as 5-10% on pre-payment of loans. Some banks don’t even permit you to repay the loan for the fi rst six months or one year

PROCESSING FEES: No Free Lunches

Watch out for: For every home loan, auto loan and personal loan, banks charge a processing fee, which can be steep

What you should know: This fee is mostly at the discretion of the bank and can be as high as 1 percentage point, which itself will infl ate your outgo. If any bank says they have a lower rate, ensure the processing fee is also low.

Source : http://goo.gl/r0S6eK

ATM :: Don’t miss retirement goals for children’s higher education

It could mean having to prolong work life and putting money in risky investment options
Arvind Rao | April 25, 2015 Last Updated at 21:25 IST | Business Standard

ATM

It’s a dilemma several middle-aged parents grapple with. Two goals – retirement and saving for children’s higher education – but not enough funds to meet them. Parents would be tempted to compromise on the former to meet the latter. But with medical costs rising exponentially, this can’t be looked at as a viable solution. This could also mean extending their work life or taking greater investment risks closer to retirement.

The dilemma

Here’s a case study that shows how one can strike the right balance. Ajay and Varsha Sharma, aged 50 and 48 respectively, earn Rs 40 lakh annually, which is not enough to fund all of their major goals. They have to repay their existing home loan of about Rs 40 lakh in the next five years. The couple needs Rs 4.5 crore for retirement and Rs 70 lakh in the next 10 years to fund the higher education of their two children.

The family savings work out to about Rs 15 lakh a year. Their employment-linked retirement benefits and 1 BHK property investment is expected to fetch Rs 2.12 crore, or 45 per cent, of their retirement corpus. This leaves them with a gap of Rs 2.48 crore, or about 55 per cent of the total corpus.

To fund the gap, the Sharma’s can invest Rs 10 lakh per annum in a mix of diversified and mid-cap equity funds. Assuming annualised returns of 12 per cent, they should be able to garner Rs 2.48 crore over the next 12 years.

At the current EMI of Rs 54,000, their home loan outstanding at about Rs 40 lakh is projected to close at the end of 10 years. They aspire to accelerate the repayment and close the loan in four years. For this, they will have to accumulate at least Rs 6.50 lakh annually via monthly contributions in recurring deposits. At the end of every year, the accumulated amount should be used to prepay the loan.

The amount of Rs 70 lakh for higher education can be mopped up by investing about Rs 4.5 lakh per annum over the next 10 years in equity-oriented balanced funds, assuming annualised returns of 10 per cent.

With the current family savings, they are looking at a deficit of about Rs 6 lakh per annum, at least for the first five years.

Part-funding children’s education

The couple has decided to make a provision for up to 50 per cent of their children’s higher education budget by extending the period for their accelerated home loan. They can cut the savings rate for the repayment by 50 per cent to Rs 3.25 lakh a year, thereby extending the period for their home loan repayment to about six years. This way, their contribution for the education also comes down to about Rs 2 lakh and savings for all three goals fit within the family savings. The additional family savings at the end of the home loan period could be used to boost retirement savings or for their children’ marriages.

To accumulate the remaining 50 per cent of their education corpus, Sharma’s children can fall back on scholarships. They can also meet the expenses through education loan or loan against fixed deposits:

Education loan: Interest rates on these are 11-12.5 per cent, with tax benefits available under section 80E. A good retirement corpus, in the form of investments, will enable one of the parents to stand as guarantor/co-applicant for the loan. For loans above Rs 4 lakh, margin money, ranging between 15-20 per cent of the loan, may be required, which can be funded by the parents.

Loan against fixed deposits: Let’s assume the Sharma’s garner a corpus of about Rs 2.5 crore at the time of retirement, which they don’t fully need immediately. They could invest, say, Rs 25 lakh in a bank FD giving 8 per cent per annum and take an overdraft against the same for their children’s education. The rate of interest charged in case of overdraft will be 1-2 per cent higher than the FD interest rate. Even assuming a 10 per cent rate of interest, this option works out to be cheaper than an education loan, but the interest paid will be sans tax benefits under section 80E.

The parents can make the children responsible for repaying the overdraft with their earnings. This will enable them to get their fixed deposit back along with the accumulated interest, which can then be utilised for their retirement. The Sharma’s should avoid loans against property as the EMI would be calculated only for their balance working years, which could mean a bigger outgo per month, plus no tax benefits on the interest paid thereon.

Funding education completely

In case the Sharma’s decide to fund 100 per cent of their children’s education and continue with the six-year home-loan closure plan, they would need to set aside Rs 7.5 lakh per annum and work for two more years to fund their retirement corpus. The Sharma’s may have to invest more aggressively, allocating as much as 75 per cent of their savings in a mix of equity mid- and small-cap and sectoral funds, and the remaining 25 per cent in balanced funds to achieve an 18 per cent growth rate and retire within the next 12 years. This strategy, however, may expose the Sharma’s to a bigger risk of not achieving their target corpus within the available time frame if the equity market do not deliver good results. Considering these risks, it is definitely better for them to part-fund their children’s education needs and not compromise on their retirement goals.
The writer is a chartered accountant

Source : http://goo.gl/lNXl7d

ATM :: Yearly bonus can help create long-term wealth

TNN | Apr 7, 2015, 06.55AM IST | Times of India
ATM
It’s the start of the financial year 2015-16. This is also the time when every investor should put in place a plan for investing and saving on taxes using all the options that the government has given to them. However, according to financial planners and advisors, while putting in place a long-term financial plan, the main aim should not be tax savings. The main aim should be to build the required corpus for the goal for which you are investing. Here are some tricks that will help you build wealth in the long run without much thought…

Use your bonus wisely

This is the time lot of people get a bonus. According to top of ficials at mutual fund houses and financial advisors, rather than spending on things that may not be an absolute necessity, you can invest the whole or a major part of the bonus in an equity mutual fund. Let us assume that you get a bonus of Rs 3 lakh this year and you put the whole amount in an equity mutual fund.

Now let us also assume that every year your bonus increases by 10% while the equity fund you are investing in, over a 10 year period, gives you a return of 12% per annum.At the start of the second year, your bonus is Rs 3.3 lakh and at the start of the third year it is at about Rs 3.6 lakh. At this rate, at the start of the 10th year, your yearly bonus will be about Rs 5.7 lakh. But if you have invested your yearly bonus every year in the equity fund that gave an annual return of 12%, your total corpus at the end of the 10th year will be a little over Rs 80 lakh. This looks like a staggering amount, but there is no magic in it.

Make good use of ELSS

According to financial planners and advisers, equity-linked savings plans (ELSS) floated by mutual fund houses are one of the best tax saving options for investors. This is because in the long term they have the potential to generate an average annual return of 12%, saves on taxes under section 80C of Income Tax Act and has a lock-in of just three years.

The returns from all ELSS are also tax free while the costs are around 2.5% per annum, one of the lowest for similar products. In comparison, most of the other tax-saving options cannot generate as high a return, costs are higher and returns are taxed on redemption. A combination of some of these factors makes such products unattractive in comparison to ELSS. So suppose after taking care of your contributions to provident fund, home loans, etc, you are still left with about Rs 60,000 to invest to save taxes under section 80C, go for one or more SIPs aggregating Rs 5,000 per month so that your yearly contribution is Rs 60,000.At about 12% average annual return, in 10 years, this can grow to be a Rs 11.6 lakh corpus.

Use excess cash intelligently

If you keep your excess cash that you need at a short notice, you probably keep it in your savings bank account. However, a better alternative is to keep it in a liquid fund of a good mutual fund house. Compared to 4-6% annual return that you can get in your savings bank account, liquid funds on an average has given a return of over 7.5% in the last five years while some of the best liquid schemes have returned over 8.6%. This higher return comes at a slightly higher risk and slightly less liquidity , that is about 24 hours, compared to money at call in case of savings bank accounts. So, if you can manage your cash inflows and outflows well, you can put your extra money in liquid schemes and earn much higher returns. There’s alternative to FDs Fixed maturity plans (FMPs) are a good alternative to fixed deposits (FDs). If you are keeping your money in FDs for three years or more, FMPs of similar maturities can give you a much better return as FMPs enjoy long-term capital gains tax advantages if the money is kept for more than three years. FDs do not enjoy similar benefits.

Source : http://goo.gl/KowGgd

ATM :: Don’t worry about TDS on RDs

Bindisha Sarang, TNN | Mar 16, 2015, 07.20AM IST | Times of India
ATM
There is some bad news for investors who thought their recurring deposits (RDs) will not be subjected to tax deduc tion at source (TDS). The Budget has made RDs liable to TDS if the income in a financial year exceeds `10,000. Till now, only income from fixed deposits was subjected to TDS.

There is also a significant change in the rules relating to interest income from FDs. Till now, the TDS kicked in only if the income from FDs made in a particular bank branch exceeded the threshold of `10,000 in a financial year.It was common for investors to open FDs at multiple branches of their bank to avoid TDS. The Budget has proposed that TDS be levied if the combined interest income from FDs in all branches of a bank exceeds `10,000 a year.

The new rules come into effect from 1 June but banks are already witnessing a rush of investors prematurely closing their RDs and FDs. “The new rules on TDS will help nail tax evasion and improve tax collections,” declares Sudhir Kaushik, Co-founder and CFO, Taxspanner.

However, taxation experts say the new rules should not be a concern for honest taxpayers. They already pay tax on their RDs and FDs. Instead of paying the tax themselves, it will get deducted as TDS. If they fall in the higher tax bracket, they will pay the balance tax.

The third major change in TDS rules is that co-operative bank deposits are no longer exempt. The Budget has proposed that TDS will also be applicable to deposits with co-operative banks.This was more or less expected. Last year, the Karnataka Income Tax Tribunal had ruled that if the interest exceeded `10,000 in a year, it must be subjected to TDS.

Following this, several cooperative banks had received notices from the Income Tax Department asking them to deduct tax for the year 2013-14. Now the Budget has put a stamp of certainty on the rule. “This will bring a lot of revenue to the government through TDS and increase the tax base because depositors would need to adjust or claim refund at the time of filing their income tax returns,” says Kaushik.

Only an interim tax

Investors should note that TDS is only an interim tax. It is 10% of the income.If the investor has not provided his PAN, it is higher at 20%. But the interest earned on RDs and FDs is fully taxable. If the income is below `10,000 and TDS has not been deducted, you have to add the interest to your total taxable income and accordingly pay tax.

The actual tax will depend on the income of the individual. Even if TDS has been deducted, it does not mean that your tax liability is taken care of.If you are in the 20-30% tax bracket, you are required to pay more tax on the income. If the investor has an income of over `10 lakh in a year, the interest from the RD or FD will be taxed at 30%.The balance 20% will have to be paid as self-assessment tax. If he earns less than `2.5 lakh a year, the TDS will be refunded after he files his tax return.

Can you avoid TDS

If you are not liable to pay tax because your total income is below the basic exemption limit, you can avoid TDS by submitting a declaration to the bank.”Those who do not fall under the tax bracket and are below the age of 60 can submit Form 15G to the bank to claim TDS exemption. Those not under the tax bracket and above the age of 60 can submit Form 15H,” says Suresh Sadagopan, a Mumbaibased certified financial planner.Forms 15G and 15H have to be submitted at every branch of the bank where you have a deposit.

Before you rush to submit the Form 15G or 15H, make sure you are eligible. An individual must satisfy two conditions to avoid the TDS. First, the estimated taxable income for the financial year should be less than the basic exemption limit. This is `2.5 lakh for individuals below 60 years, `3 lakh for senior citizens, and `5 lakh for very senior citizens-above 80 years.

The second condition, which is applicable only to Form 15G, is that the total interest income from all sources should not exceed the basic exemption limit.Senior citizens have been exempted from this condition because most retirees get the biggest chunk of their income from interest.

These forms also require the individual to mention details of other incomes, including dividends from shares and mutual funds. Dividend income is taxfree but the Income Tax Department still wants to know how much you earned from them.

You must carefully assess your income before submitting Form 15G to escape TDS. If you are not eligible to receive the exemption, but you submit the form, it can have serious repercussions. “Giving incorrect information to avoid TDS amounts to tax evasion. A penalty of up to `1 lakh can be slapped in such cases,” warns Kaushik.

Investors are rushing to close their RDs before the taxman gets a whiff of their wealth. “Premature closure of my RD will fetch me a lower interest rate. But at least there won’t be a tax deduction,” said an investor at a public sector bank in Delhi.

Banks may see more premature closures of deposits. It is not difficult to see why investors are panicky. Since the TDS is credited to the permanent account number of the investor, not mentioning the income in the tax return can lead to problems. The computer-aided scrutiny system of the tax department could pick up the mismatch in the tax credit and income declared by the assessee, which can lead to a detailed scrutiny by the tax authorities. If tax has been deducted at source but returns have not been filed, the tax department may want to know why.

Source : http://goo.gl/hTTmjB

NTH :: Life insurance most preferred investment for affluent Indians

PTI | Jan 30, 2015, 12.34 PM IST | Times of India
NTH
MUMBAI: Life insurance has emerged as the most preferred investment option for Indian households with an income up to Rs 25 lakh, says a survey.

Seventy per cent of affluent population of the country, who hold investments other than cash, have put their money in life insurance, while 64 per cent among them have gone for fixed deposits, according to the DSP BlackRock India Investor Pulse Survey.

It is followed by their investments in other financial instruments like shares (46 per cent), equity mutual funds (33 per cent), fixed maturity plans (27 per cent), tax-free bonds (25 per cent) and so on, it said.

“Even though the larger current ownership is in insurance and fixed deposits, there is a growing awareness among the educated affluent category of investors in the country to move more money from cash and deposits to other form of investments like mutual fund and bond,” said DSP BlackRock Executive Vice President, Head (Sales) and Co-Head (Marketing), Ajit Menon, while unveiling the survey report here today.

People living in the country invest 25 per cent of their monthly take home pay, which is higher than the global average of 17 per cent, it said.

When it comes specifically to asset allocation, Indians are more likely to invest in property than the global average, it added.

Equities and bonds are also important asset classes accounting for 13 per cent and five per cent of the total value of saving and investment products, the survey said.

Majority of Indians (56 per cent) feel their economy is getting better, way ahead of the global average of 22 per cent. The huge margin of positivity extends to their financial future with 81 per cent of Indian respondents feeling positive as compared to 56 per cent globally, it added.

A large proportion of Indian respondents also feel that they are in control of their finances (75 per cent) as compared to the global average of 55 per cent, second only to China (84 per cent).

Source : http://goo.gl/kYW3BE

ATM :: What the RBI rate cut means for investors as well as borrowers

Narendra Nathan | ET Bureau Jan 19, 2015, 08.00AM IST | Economic Times
ATM
RBI surprised the street by cutting the repo rate from 8% to 7.75%. Though small, this ‘between-the-meetings cut’ has given the signal that the RBI is confident of achieving its inflation targets and the focus is shifting towards growth. Since the RBI has always wanted policy action to be consistent with long term rate stance, this cut heralds the start of a new ‘rate cut cycle’. Now the only questions are ‘how much’ and ‘by when’ these rate cuts will happen. Since most experts (see box) see measured rate cuts, how is it going to impact you?

Investments: The Sensex and Nifty jumped by 729 and 259 points respectively on 15 January, when the rate cut was announced. Stocks from rate sensitive sectors rallied. While the bank Nifty hit a new high, the realty index jumped more than 8%. A lower rate increases purchasing power and therefore, is good for most other sectors as well.

Debt investments can be classified according to how the impact of this cut will be felt. The first part, where the market forces decide the price of bonds, has already rallied based on the expectations of a rate cut after the budget.

The 10-year yield came down by a further 10 bps on Thursday. Most experts are predicting a further fall in the 10-year yield. Long term gilt funds and long term tax free bonds should generate double digit returns in 2015 as well.

The second part includes bank FDs and RDs, where the rates are fixed by the banks. Since this rate has not yet fallen, it still provides a good opportunity to lock in at higher rates. Go for FD if you have enough liquidity; else start an RD.

Loans: To protect their margins, banks first cut the rates on FDs and RDs before reaching for the loan rates. In the recent past, banks have refused to bring their base rates below the 10% mark, despite significant deceleration in loan growth.

Though banks may do some token cuts to pacify the RBI, no major cut in lending rates are expected. Borrowers may have to wait for a few more months for the arrival of the “achhe din”.

Since demand for automobiles is weak, the first rate war may start in the auto loan segment. This reduction is possible without tinkering with the base rates because the interest rates on most auto loans are at a significant premium to the base rates. Bargain hard to get a better deal on auto loans.

Since home loan rates are only slightly above the base rates, the reduction will be in line with the reduction in base rates. One should not expect more than 25 bps reduction in home loan rates. This reduction will be only for borrowers who have availed the ‘floating rate’.

However, overall home loans rates are going to come down significantly in 2015. Borrowers who can afford to should wait for better rates. The same applies to those who want to shift between lenders now. Wait for a few quarters, let the borrowing rates stabilise at lower levels and then make the move towards the lowest lenders.

Source: http://goo.gl/xFZ1z8

ATM :: 15 investment ideas for 2015

By: K Naresh Kumar | January 11,2015, 12.41 AM  IST | THE HANS INDIA
ATM
Here goes the saying that many people look forward to the New Year for a new start on old habits. On each New Year, most people embark on a list of resolutions but by the end of the year, a very few manage to achieve the desired results. So, let us look at the 15 investing/saving ideas for the year 2015.

Prepare/revisit goals: Dream and draw up a plan to reach them. Like they say it all starts with the single small step, so break it down to a financial goal and seek ways to reach it.

Have a budget: This is something many people struggle at, including our Govt. To remain organized, identify and define your expenses as discretionary and non-discretionary, Create caps and ensure you stick to it. Use any of the available online organizers or budget planners to keep tabs.

Cut costs: Cutting costs doesn’t mean cutting back, one needn’t change the lifestyle to reduce expenses rather change how much your lifestyle costs. For instance, go for an online purchase and only after a comparison of an essential.

Ditch the savings account: Savings account can’t even match the current lower inflation. Once the budget’s in place, route the rest of the amounts to a liquid/liquid plus funds. The results will sure be pleasantly surprising.

Invest in Equity: India story is intact and the worst is behind. Add this asset class according to their risk appetite, though this year could witness quiet an amount of volatility. Stick to a SIP for better cost averaging.

Expose to Fixed Income: The possibility of interest rates going down is higher than ever this year. Lock-in on higher interest rates with better tax efficiency like the FMP, long term debt funds than a FD.

Bond with Bonds: Explore bonds including tax-free variant. The falling interest rates would appreciate the bond prices while one continues to enjoy the accruals (interest). Try to time the investment before the yields harden.

Exploit the taxation: Max out on the tax shielding instruments that could cut your tax liability. But please ensure these decisions are in line with ones goals.

Create a portfolio: Asset diversification is a must and create a portfolio that has the least possible correlation. This way one could reduce the risk and also end up positive in most market conditions.

Do charity: Be it Karma or otherwise, one gets what one gives. Spare a bit to charity and also claim tax benefits u/s 80(G)

Play hard ball: The businesses are slowly looking up, so bargain for its true worth.

Go for a Gold cover: With so much uncertainty and strife in the world economies, gold could add a bit of sheen, at least from last year’s perspective but limit to less than 10% of the portfolio.

Dabble with Oil: Try playing in commodities this year and Oil, though going through a bloodbath might rise up as all the falling is only to build up.

Dump the DIY in investing: Take help of an expert for advice and execution. Make sure he acts as a guide and understands your needs and requirement.

Leap of faith: There is an information overflow across media now-a-days. Make a habit to acknowledge ones instinct aka gut while making important decisions. No amount of fundamental, technical and exogenous cues could replace. Pick all or some of these ideas to realize your dreams.

Source: http://goo.gl/LOKZbj

NTH :: 3-year bank FDs may get tax exemption

By ET Bureau | 22 Jan, 2015, 10.29AM IST | Economic Times
NTH
MUMBAI: The government may consider the demand of banks to make fixed deposits for three years and more tax-free instead of the five-year lock-in period at present, providing these lenders a level-playing field with mutual funds and tax-free bonds that have been weaning away a large chunk of investors.

Indicating this possibility, officials said bank executives and heads of financial institutions also requested finance minister Arun Jaitley in a pre-budget meeting to consider separate tax slabs for corporate entities on the lines of different tax slabs for individuals.

“The view from the pre-budget meeting is that FDs of lower maturity should be considered for tax benefits,” said a person present in the meeting.
3-year bank FDs may get tax exemption
Bankers say this will discourage people from opting for other instruments like mutual funds, which have a lock-in period of three years. The terms of schemes eligible for tax rebate under Section 80 C are not uniform; while public provident fund has a lock-in period of 15 years, it is six years in the case of national savings certificate and three years in equitylinked savings schemes (ELSS).

“Largely, it will bring flexibility to people in terms of lock-in and lower lock-in will make it (the sum invested) available after three years,” said Suresh Sadagopan, founder of Ladder 7 Financial Advisories. “This will bring bank FD in direct competition with ELSS.”

Financial saving as a percentage of gross domestic saving fell to 7.1% in 2012-13 from 7.2% in the previous year. Gross domestic saving fell to 30.1% from 31.3% during this period.

At present, investment up to Rs 1.5 lakh in certain instruments including various post office schemes, public provident fund, bank deposit, life insurance and principal paid on housing loan is eligible for a tax rebate.

Source : http://goo.gl/unqOIj

ATM :: 6 steps to get out of a credit card debt trap

Rajiv Raj- Founder & Director -Creditvidya.com | MoneyControl.com

ATM

If you have reveled and gone overboard with your expenses on your credit card in the holiday season just gone by, it is likely that you find yourself straddled with a hefty outstanding balance. It is akin to a bad hangover you would probably suffer from on New Year’s Day after a great party on the 31st night! But unlike a hangover that can be gotten rid of in a few hours, credit card debt could be far more pressing! Here are some tips for you to consider if you are grappling with a debt pile that looks impossible to handle at the moment.

The happiness of buying goodies and spending on parties you may have attended during Christmas and New Year may have come to naught for you, if you are staring a hefty credit card bill right now. While that is definitely not the best way to begin a new calendar year, the damage is already done. If you are in a state of shock, for you certainly don’t have the money to repay your dues right away, here’s what you could do.

Take stock of the situation:
The first and most important step to take is to acknowledge the problem in hand. If you become a defaulter on your repayment on your credit card, it will impact your Cibil score negatively. While making one late payment may not hit you immediately, but if you get into the cycle of late payments it may be difficult for you to get out of it over a longer period of time (ranging over 60-90 days), which will then shave the points off your Cibil score eventually. To ensure that your Cibil score remains intact, you need to handle your credit card debt pronto. There are several ways to do it such as a balance transfer, converting your debt into an EMI or opting for a cheaper loan to repay your debt. Let’s look into these options in greater detail.

Balance transfer:
This is a facility that banks offer to people who have a large outstanding balance. In this facility you can transfer the outstanding balance from one credit card to another. You could opt for a fixed duration balance transfer (usually a 3-12 month window) within which you can make the repayment at an interest rate that is lower than what you would have paid on your regular credit card. The rate of interest is usually 9-10% (differs from bank to bank). Some banks also offer a “lifetime duration” option to make the repayment, though the interest rate in this case is much higher (in the range of 12-24%, depending upon the bank). In order to get this facility, you will have to pay a processing fee, which will be around 2% of the outstanding amount you wish to transfer. After the bank verifies your details, they will send you the cheque or the demand draft in favour of your existing credit card that you can use to repay the first card.

Although a balance transfer sounds like a great way to handle credit card debt, and other banks will be more than glad to issue yet another credit card to you, you must take cognizance of the fact that it is only postponing your problem instead of solving it. Your attempt should therefore be to use this facility sparingly. Besides, if you get into the habit of frequent balance transfers, you will end up opening a large number of credit lines. A large number of open credit lines may also impact your Cibil score, albeit marginally, in a negative way.

Converting outstanding balance to EMI:
If you do not want to go through the hassles of balance transfer from one credit card issuer to another you could consider converting your outstanding balance into monthly instalments. Banks may offer a rate of 1.49% to 1.99% per month to their existing customers, but this too may vary from bank to bank. However, the point to be noted here is that if you miss a payment cycle during the EMI repayment, the bank will revert to the regular interest charges and you will find yourself stuck back in the same situation.

Opt for cheaper loans:
Of all the debts you service, the rate of interest you pay on your credit card is the highest at 36-42% per annum if it is not serviced on time, so it makes sense to opt for a cheaper loan to repay this high cost debt as soon as you can. You could therefore consider a personal loan for a period of three years if you are in a position to service it. The interest rate you would pay for it would be in the range of 16-24%.

You could also opt for security backed loans such as a top up loan on your home loan or a gold loan. If you have a good track record in servicing your home loan, you will be eligible for a top up loan which is available at an interest rate of 12%. Similarly, if you have some gold jewelry stashed away in a locker, you could use it to get a gold loan at an interest rate 13-15%.

If you have other investments such as a fixed deposit, you may also opt for a loan against it. Such loans are available at a rate of interest that is one percent higher than what is offered on the investment itself. For instance, if you are earning a rate of interest of 9% on your FD, a loan against it will be available at a rate of 10%. Loans against other investments such as traditional life insurance policies, mutual funds, etc. are also available at similar rates. If you have accumulated a large debt pile, you can also think about liquidating some assets to pay off your credit card debt.

Negotiate for a lower rate of interest
If you feel that none of the above options are feasible for you, pay a visit to the bank and explain your financial situation to them. If you can convince them about your willingness and intention of repaying, chances are, that you can get a low interest rate or a flexible repayment schedule depending upon the bank’s policies. However, do consider the feasibility of the other options discussed above, before you think of doing this.

Cash is your best friend:
Till such time you have paid off your credit card dues, cut down on your expenses and live on cash. It’s a good idea to lock away your credit card till all the debt has been cleared on it. You will need to be patient as you atone for reckless financial behaviour, but this will probably serve as a lesson for a lifetime for you. Once you are in the pink of your financial health once again, you will feel good about your frugality.

A credit card debt pile can indeed be intimidating, so do be careful and responsible while using it in the first place. However, if things have gotten out of hand already, the above mentioned hacks can be used to get things back to normal. Once things are back in order, it is also recommended that you pull out your Cibil report. This is to ensure that your efforts to repay your debt are reflecting on your Cibil report and your Cibil score is in order.

Source : http://goo.gl/bjf7TJ

ATM :: 8 Money Management Moves That You Can Make In The Next 15 Minutes

Rajiv Raj | Nov 11, 2014, 03.02 PM | Business Insider
ATM
Money management is a tricky task. Some of us loathe it, while others love it. Whatever it is, nobody can ignore it, because it is a very important skill that all of us should acquire. If only it was as simple as learning alphabets in schools? That said; it is not rocket science as well. Unlike popular belief it is not even time-consuming. I even know of a friend who jokes constantly, “I can make money, but for life of mine, I cannot manage it.”

So, for the benefit for all those who feel that they cannot manage their funds well, we decided to put together a list of eight money management moves that can be made in 15 minutes or less. Unbelievable? Read on to find out:

1) Pull out CIBIL score: A credit score and a report from the Credit Information Bureau of India Ltd (CIBIL), India’s leading credit rating agency, is a record of a person’s credit history, his payments and outstanding dues. Lenders pull out your CIBIL report and score before approving you a loan. To get a loan at an attractive interest rate you need a score of 750+ (ranges between 300-900). Check your score at least once a year, to make sure there aren’t any errors or discrepancies even though you have been paying on time.

2) Start an RD: A recurring deposit (RD) account can be easily linked to your savings account. Banks can take a request for an RD on phone and you can start saving as low as Rs 1,000 a month. Instead of spending money in paying interest on those products, which are available under easily available equitable monthly installment schemes, save up through RD, earn an interest and buy it.

3) Update your nominees: You have been putting away money to save for your wife, children or any other family member. If something were to happen to you tomorrow, are you sure all your loved ones get exactly what you intended for them? It is always a good idea to name your nominees in every kind of saving instruments; be it an insurance policy or a simple savings bank account.

4) Make a will: We love to believe that our children will not fight over property after we are gone. But the reality is different. It is important for us to create a will as we reach 35 years of age. I know of friends who started writing a will as soon as they had their children. The advantage of a will is that after we are gone, our near and dear ones know what exactly they get from what we have earned and saved. It also prevents any kind of misunderstanding among our children and results in easy distribution of our wealth. Ensure you make provision for your spouse as well. Once written, it is open to any kind of amendments you want.

5) Update account passwords: It might seem like a mundane task, but an important one. This helps in keeping your money safe and protected from phishing and fraudulent activities.

6) Plan your pension: Earlier our parents, most of them worked in government agencies. These jobs were not only safe, but also promised pension after they retired. Since most of us are working in private sector these days, can you think of a regular income after you retire? Hence, it is important for us all to have a financial plan in place to fund our expenses during our later years.

7) Scan important documents: Your form 16s, house registration papers, insurance policies, savings instruments documents, fixed deposit (FD) certificates, vehicle ownership papers and all other such documents have to be safe. Scan and keep a soft copy handy and keep the originals locked in a bank locker. There are many phone apps available for download that can help you scan these documents.

8) Identify saving goals: Yes, it can be overwhelming to save when half your salary goes in paying up mortgages, but that should not stop you from saving. You should always target to build a corpus continuously. For all you know, some day you decide to buy another house and you may not have to run from pillar to post for funding the down payment.

About the author: Rajiv Raj is the director and co-founder ofwww.creditvidya.com.

Source : http://goo.gl/2GPyWr

ATM :: Your emergency fund strategy is flawed

You need a strategy-based approach that goes beyond FDs.
Deepti Bhaskaran|First Published: Mon, Jun 10 2013. 08 24 PM IST| Live Mint|

ATM

You could be a young individual just starting out with dreamy eyes and tall ambitions or a mid-career worker toiling hard to provide for your family or an individual just years away from retirement. Regardless of where you are in your work life, a sudden job loss is that dreadful event that most of you would like to believe can never happen to you.

The future remains unpredictable, and therefore you need to ensure a financial health that temporary shocks, such as a job loss or medical emergency that impedes your ability to earn, can’t disrupt. In fact, as it turns out that’s the first thing you need to do. You need to build an emergency fund as soon as you start planning your finances. “Individuals should know that emergency fund is the first corpus they should build before making any long-term investment,” says Mukesh Jindal, partner, Alpha Capital, a Gurgaon-based financial planning firm.

This applies to all working individuals including even those with a good asset base. “An emergency fund is needed throughout the work life of an individual since emergencies don’t go away with time. As far as an asset base is concerned, keep in mind that these assets might not be liquid. For example, you may own properties that you can’t liquidate in one or two days’ time,” says Kapil Narang, chief operating officer, Ameriprise India Pvt. Ltd, a financial planning firm. Begin by understanding the meaning of an emergency fund before you learn how to build one.

What is it?

An emergency fund is a safety net that helps you tide over a temporary cash crunch. Not only does it help you get by until you find your feet again, but it also ensures that you don’t end up dipping into your investments made for other goals. “Though it is an important aspect of planning, many people do not set aside the funds for an emergency and many times end up taking high interest loan for an emergency need. To avoid such situation, it is good to create an emergency fund corpus which can be utilized at the time of requirement,” says Anil Rego, founder and chief executive officer, Right Horizons, a financial planning firm.

photo

It’s a common mistake therefore to think that an emergency fund is that little extra money that lies in our savings bank account. “In case of job loss or a health problem, that little extra will not suffice. One needs a suitable buffer which is at least three-six months of expenses,” says Manikaran Singhal, founder, Marvel Investments, a financial planning firm. How much you keep aside will also depend on the nature of your job. “Business individuals need at least six months of expenses. Salaried individuals can also manage with three months of living expenses, but if you are in a volatile sector you need to have provision for more,” says Suresh Sadagopan, founder, Ladder7 Financial Advisories, a financial planning firm.

Begin by taking stock of your cash flows. “Start with a simple budgeting exercise. Once you know your total expenses you can segregate them in committed and non-committed expenses. You can build your cash reserve equivalent to your committed expenses such as equated monthly instalment and kid’s tuition fees,” says Narang.

How to build it?

The next step after understanding the money that you need for a rainy day is to create an investment portfolio so that your money can earn slightly better than what a typical savings bank account offers. “If the emergency fund is too less, it could create pressure and if it is too much, it would reduce the returns. Hence, one needs to have a portfolio of differing liquidity levels and returns so as to optimize the two,” says Rego.

So what are the most important parameters to select the right products to create an emergency fund? “There are three most important parameters. It should be liquid, have no exit load and should give you stability of returns,” says Jindal. Therefore, you can’t bank on your equity portfolio during an emergency. What if the market tanks and takes your money down with it? Or you bank on your house that takes forever to sell?

What you need is a portfolio that maintains that fine balance between optimizing returns and having adequate liquidity. For this, you need a combination of products. Ideally you should start with putting away little in your bank account. “An amount equal to the expenses worth one month is enough in the bank,” says Sadagopan.

After this what instruments you choose will pretty much depend upon your comfort level with the financial products that are available in the market. The basic would be to have a combination of sweep-in account and fixed deposits. A sweep account is a savings bank account that after a particular threshold channels your money into a fixed deposit (FD) automatically and breaks this FD should you face a crunch in your bank account. “Suppose you issue a cheque and there isn’t sufficient balance in your account, the bank will break this FD to honour the cheque. This facility is mostly used by HNIs (high net worth individuals) or individuals with unpredictable income,” says R.K. Bansal, executive director, IDBI Bank Ltd. But you need to keep in mind that a premature withdrawal, as is the case with most regular stand-alone FDs, will invite a lower rate of interest. “The interest rate for the period the money is held in the FD will apply. For FDs below Rs.1 crore, most banks have now waived the pre-payment penalty,” asays Bansal.

But if you are comfortable with slightly more complex products such as debt mutual funds, liquid and ultra short-term bond funds is what you should look at. “You should park 70% of your emergency fund in these products. Many asset management companies today offer mobile transaction and debit card facility for investment withdrawal, adds Singhal.

Liquid funds invest in very short-term securities of upto 90 days whereas ultra-short term bond funds invest in securities with maturity higher than 90 days. Liquid funds usually don’t have an exit load, but many ultra-short term bond funds come with an exit load in the range of 0.1-1.0% if funds are redeemed in say a week to six months. “Ultra short-term bond funds can give slightly more, however they are more volatile than liquid funds but the difference in volatility is negligible and is at an acceptable level,” says Jindal.

Also with this initial buffer in place, you should also consider parking a portion of your money with short-term bond funds. “They give better returns but are more volatile and have an exit load initially. For this reason, you can’t start with them but you need to invest a portion here to ensure a higher return for the overall portfolio,” says Sadagopan. This is also true as most of you may not end up dipping into your emergency fund at all or at least in full.

Having an emergency fund is a very important element of financial planning. And just like it’s critical to have an emergency fund during your work years, you need to maintain a part of it even during retirement to tide over an unexpected cash crunch. And to simply put the money in your savings deposit is not smart at all.

Source : http://goo.gl/hqLIR

Equities have vastly outperformed FDs historically: Harshad Patwardhan, JPMorgan AMC

By ECONOMICTIMES.COM | 6 Apr, 2013, 08.14PM IST |

In an interview with ET Now, Harshad Patwardhan, ED & Head-Equities, JPMorgan AMC, talks about the Indian market and why it should the preferred choice for investors over bank FDs, gold and real estate. Excerpts:

ET Now: When we started 2013, Indian markets were trading at the top of the heap, but now we are trading at the bottom and are no longer a good house which is part of a dirty neighbourhood. What is your take?

Harshad Patwardhan: Things have certainly changed. Compared to January, things have changed and the primary reason for that is political developments that happened about a month ago. The market is down only about 3% and it is surprising because $10 billion of net FII inflow has come in but there has been a lot of selling that has happened from domestic institutions because of redemptions. Therefore, we are a bit more cautious.

ET Now: We are completely dependent on global liquidity. When foreigners buy, we go up and when they sell, we go down. Of late, foreigners have been buying but we are still going down. Why is this happening?

Harshad Patwardhan: That tends to happen. Market moves are more muted compared to what is happening at a stock level. During the first quarter of this calendar, Nifty was down about 3.8%. However, the dispersion in stock returns is phenomenal. Therefore, the best stock was up about 28% in the three months in Nifty and the worst stock was down 37%. We are not buying the market but we are buying individual stocks. Even in this challenging environment, we have to find ways to make money in a relative term for our investors.

ET Now: Are you a bit surprised and worried about the polarised nature of this market?

Harshad Patwardhan: The dispersion has been happening for a while. It is not a quarter phenomenon. As equity fund managers, we focus on the stocks that have not turned well and whether value is emerging on those. Our portfolio is not just hiding in defensives but we selectively also look at stocks where value may be emerging after a long streak of underperformance.

ET Now: You own some quality stocks, consumer names and private banks. Are you happy to pay quality premium?

Harshad Patwardhan: That premium in certain cases is justified because even in a tough environment, some of these businesses will continue to do well. Therefore, if a business can deliver somewhere between 18-22% earnings growth, it deserves that premium. However, we are also conscious that if that continues for a longer time and if earnings growth disappoints, the valuations relative to earnings may look very expensive.

We are conscious of that and therefore our portfolio is a mix of some of those stocks which are high quality, high growth and which can grow in the current environment. A the same time we also have some of the stocks which have underperformed but it may be changing at the margin.

ET Now: A year ago as a fund house you were hiding in quality stocks/defensive stocks, but of late you are selling them and you are also adding some industrials and some rate sensitivities. What is in the price?

Harshad Patwardhan: Instead of the market, certain stocks are clearly pricing in that doomsday scenario will continue for another 2-3 years. Therefore, we have to allocate the limited resources. Sometimes it does make sense to take some money off the table from the quality stocks and growth stocks that have done extremely well.

However, based on valuations, they do not offer those returns going forward and allocate that money to stocks which are good quality. We do not compromise too much on good quality stocks. Therefore, we have allocated from those defensives to some of the industrial rate sensitivities. This is because ultimately what our investors are looking for are returns and if the expected returns are high, we do not mind reallocating the capital.

ET Now: Large cap equity oriented schemes are underperforming their benchmark indices. Why is that happening?

Harshad Patwardhan: Inherently, equity is a long-term asset class and it is understandable why people are not happy about equity because for the last 5 years nothing much has happened. If we look at next one year, there are many uncertainties – domestic as well as international. However, people tend to forget that as an asset class equities have delivered very good returns. For example, 24 out of 33 years equities have delivered positive returns.

On a compounding basis, equities has delivered 16% returns over the last 33 years. That is something that needs to be reminded to investors and potential investors because the recent experience of people on equities is not good. These are uncertain times and if we make an entry now, we might get rewarded by the market.

ET Now: Do you think a genuine Indian retail investor will come back to equities when gold, real estate or fixed deposits start doing badly?

Harshad Patwardhan: Yes, that is unfortunately true. For the past 5 years, equity markets have not delivered good returns but this is one asset class that can help us protect and grow our purchasing power. Therefore, if we look at the last 33 years and compare equity as an asset class versus one year bank fixed deposit – the difference in returns is phenomenal, especially if we adjust the inflation.

If you adjust for inflation, equities have delivered 9% real returns over 33 years. In the same period, one year bank deposit has delivered barely 1-1.5% returns. That is the difference in real returns that this asset class can give. Unfortunately, investors will flock to an asset class which has done well in recent times.

ET Now: Markets are looking slightly shaky as growth has come down and CAD has gone up. Do you think that for markets to have a durable rally, macros have to improve first?

Harshad Patwardhan: Macros have to improve first. However, the macro numbers that we are seeing now in terms of growth and CAD is a result of what happened over the past 2-3 years. The more important thing for markets is to focus on sequentially how things are going to move. The CAD number was worse than even the most pessimistic expectation but it should be noted that CAD this quarter is likely to be better.

In terms of growth, most people expect the GDP growth to accelerate to about 6 per cent. Therefore, sequentially things may be moving for the better. It is not something that we should celebrate but we should note that on some of the key macro variables, things are changing for the better. In terms of interest rates, we can debate as to whether there will be a pause or not. Over the next one year, we may see policy rates 50-75 bps lower than where they are now.

ET Now: Do you think we should stop making song and dance of monetary action?

Harshad Patwardhan: I agree with you. Though rates have come down, some projects are not going to take off immediately. For that to happen, more action is required on other fronts. After almost 24 months of inaction, we have seen some action and we tend to forget how drastic some of the government measures were like diesel price decontrol. We have seen three or four instances of prices going up. That is very good from a long term macro perspective.

Railway passenger fare hike has happened after almost a decade. Moreover, the government is pusing ahead with the direct cash transfer scheme. Therefore, the government has been taking some actions over the last six months. It will take time for that to translate into corporate confidence picking up. Rates are going down but that is not a sure way of revival in corporate capex.

ET Now: Due to high inflation, car sales have slowed down and retail footfalls have fallen. Jubilant Foodworks has indicated that they are struggling to sell more pizzas. How are you approaching consumer stocks?

Harshad Patwardhan: For most of last year, we did not see a problem on the consumer front but it had to come at some stage. At present, we have seen a slowdown from discretionaries to non-discretionaries. Therefore, we have to be very careful because the valuations are not very comforting.

ET Now: But discretionary is not that expensive?

Harshad Patwardhan: Some discretionaries such as jewellery companies are not mouth watering right now considering the valuations. Therefore, it is important to do strike a balance. We tend to look at individual stock prices not a market as a whole and it has priced in the slowdown in demand.

At times, we do not hesitate taking some money off the table from that segment and look for a segment where there is no still visibility but the stocks are pricing in a challenging time period for another 2-3 years. Our belief is that sooner than 2-3 years, a revival will start. Therefore, we do not mind allocating money from there to here.

ET Now: Do you think large cap IT seems a crowded trade now as almost everyone on the street is of the view that US economy has revived and it will benefit IT stocks?

Harshad Patwardhan: It is certainly becoming a consensus view. The analysts are saying that 2013 will be better than 2012. The real question is whether this demand revival will be sustainable. If the demand revival is sustainable on the IT spend, I am not sure whether that trade is over in terms of IT stocks doing well.

ET Now: Are you still are a big fan of large cap IT stocks?

Harshad Patwardhan: We are overweight on the segment but we are internally trying to form a view as to whether this demand upturn is sustainable or it is a one year phenomenon.

ET Now: Are you tempted to go down the ladder when it comes to IT space? Are you looking outside those three-four names?

Harshad Patwardhan: We have a smaller companies fund which is a midcap fund. Therefore, we have some stocks which are from the tier II and tier III names. We also have exposure to both tier I IT companies and smaller ones.

ET Now: One space which has got absolutely smashed is the entire metal space. Is it time to start nibbling at metals now?

Harshad Patwardhan: Among metal stocks, the kind of conviction we can build is lower than that in some of the others. This is because there are too many variables. Therefore, it may not be prudent to be completely absent in that category.

ET Now: Among China, Japan and US, which economy will surprise us on the upside and which economy could disappoint us on the downside? What could be the implications of the current global set up?

Harshad Patwardhan: We are reasonably positive on the prospects of Japan and US and perhaps lesser on China.

ET Now: Do you think currencies will have a very strong role to play for next 12-18 months?

Harshad Patwardhan: Currency is something we have to watch because of our current account deficit. That is one area of vulnerability as far as India is concerned and we are monitoring it very closely.

ET Now: In the near term, are you thinking of aligning more with exporters because if macros role revive, the rupee will remain under pressure and if rupee remains under pressure, IT along with textile exporters and auto companies will also benefit?

Harshad Patwardhan: Yes, some of them will. We have a section of the portfolio designed exactly as per the kind of scenario that you painted.

ET Now: We can endlessly argue whether the PSU banks are good or bad, but the bottom line is – they are cheap. Are you a big fan of the PSU banking space? Do you think there is a trade there?

Harshad Patwardhan: I am not a big fan of PSU banking space but there are times when it makes sense to get into them. Therefore, we have some position in those banks. This is because the argument is that valuations are too cheap and if and when the revival starts in the economy and the NPL cycle peaks and trends down, these stocks could do well. We own that space primarily to protect ourselves against that scenario.

ET Now: What about the bad part of the market – companies which have bad balance sheet, asset owners where balance sheet quality is a question mark. Do you think it will be a while before that space will revive?

Harshad Patwardhan: For the past six months, we are very closely looking at that space. We are looking at the better quality companies there with better promoters. However, the cycle has been so severe that even some of the good names have suffered. We believe that at some stage there will be a time to buy these stocks. ET Now: Everyone is excited about policy reforms but the policy stocks such as HPCL, Reliance, ONGC and other infra names have run precious little. Is it not quite ironical?

Harshad Patwardhan: Yes, but there have been so many false starts in the past. If we talk about the oil & gas sector, there have been many false starts. Therefore, investors want more evidence before they believe that it is indeed going to stay.

ET Now: When will the new bull market start or has it already started but we are not able to recognise it?

Harshad Patwardhan: It is very hard to say but let us try to analyse it using some numbers. For at least five years, EPS growth for Sensex was barely about 7% compounded and the CAGR for past 20 years is about 14%.

Therefore, for past five years, corporate India has been growing at a much slower rate than the average. If we look at the estimates for the next two years, they range somewhere between low-teen to mid-teen numbers. Therefore, most of those negatives are already priced in. However, those numbers may not be revised downwards as the bulk of the downward revision has already happened.

ET Now: Do you think markets are likely to move in line with earnings growth now?

Harshad Patwardhan: That is a fair assumption. After the election results are out and if we have a favourable outcome, there could be a potential for re-rating. We can’t draw any conclusion from the calendar year returns when elections were held. Therefore, it will depend on what happens. We should expect a mid-teen number right now and that is also in line with the long term returns of 16% over last 33 years.

ET Now: What is your big investment idea going forward?

Harshad Patwardhan: There are many positives as sequentially, things are looking up. There is a section of the market which is extremely cheap in pricing. Therefore, we are focussing on those companies and trying to figure out whether this is the right time to buy. Our portfolio is fairly balanced and has companies that will do well even if the macro situation does not improve in the near term. We also have some companies which are geared to that improvement but we are closely monitoring and researching companies.

ET Now: Are fairly convinced that in the next 6-12 months, Indian markets may not do anything special?

Harshad Patwardhan: It is very hard to predict that. I don’t know when the elections are going to be held but if the opinion polls start coming out and if the outcome is something that suddenly seems attractive to people, markets will not wait for things to happen. It may start getting priced in. Therefore, one big lesson from last year is that negative news flow does not necessarily mean markets will go down.

ET Now: Among global liquidity, local macros, earnings and politics, which factor will have the highest influence on markets for the next 12 months?

Harshad Patwardhan: All of the factors because it is an interplay of various things.

ET Now: What would you like to prioritise?

Harshad Patwardhan: Global liquidity is important because we are vulnerable right now on a CAD front. It did not happen at the same rate as last year. Politics – a reasonably palatable outcome is important for and revival of corporate capex and sustainability of earnings growth.

ET Now: Are you bearish, bullish or cautiously bullish?

Harshad Patwardhan: Cautiously bullish is probably the right description.

Source : http://goo.gl/0zILN