Saturday, December 3, 2011

Prajna Capital

Prajna Capital

Liquid Mutual Funds give higher returns than savings account

Posted: 03 Dec 2011 12:41 AM PST

PEOPLE are used to keeping temporary surplus cash balances in a bank savings account, as a matter of habit, convenience and also, due to the safety offered by banks. To make these accounts more attractive, interest rates on savings accounts of banks are going up as well. Once upon a time, the interest on savings account balances used to be calculated on the minimum balance between the 10th and last day of the month. This method of calculation was changed to the average balance method by the regulators. The rate of interest, which used to be 3.5 per cent per annum earlier, was raised to 4 per cent and has now been deregulated altogether by the Reserve Bank of India (RBI), giving banks the freedom to offer a higher rate of interest as per market competition. Three private sector banks have already raised the rate of interest on savings accounts to 6 per cent and other banks may follow suit as per their requirement of funds and competition.

However, it is possible to earn higher re turns, in a safe and liquid investment instrument -liquid schemes of mutual funds. These funds invest in money-market instruments like certificates of deposit issued by banks and commercial papers, issued by non-banking financial companies (NBFCs), to name a few, with residual maturity less than three months. The net asset value (NAV) of the funds is published every day and the asset management company (AMC) running these funds offers daily purchase and redemption at NAV-based prices. The method to purchase/ redeem a mutual fund scheme unit is to either go directly to the office of the mutual fund/registrar and transfer agent (RTA) or go through a financial adviser/planner dealing with the fund.

Although, a mutual fund cannot guarantee or indicate returns (being market related investments), we can look at returns delivered by liquid funds in the recent past, which are in the range of 8 per cent to 9 per cent annualised. In addition, the RBI repo rate, which more or less defines the overnight rate in the inter-bank market, has been set at 8.5 per cent now, hence, we may expect upwards of 8 per cent annualised returns from liquid funds.


So far, the highest rate offered by banks for savings accounts is 6 per cent, hence, there is a clear mark-up in returns from liquid funds over bank savings accounts.

Mutual funds are regulated by the Securities and Exchange Board of India (SEBI) and invest in securities rated by the rating agencies such as Crisil/Icra, as per investment norms mandated by Sebi. It is safe to invest in liquid funds, along with the additional sweetener of higher returns.

The only advantage of a bank savings account, which cannot be matched by mutual funds, is the cheque writing facility. Bank savings accounts are not only an avenue for parking temporary cash surpluses, but, it is also al lows an account holder to transfer funds through cheques/ electronic routes and anytime fund withdrawal facility through ATMs. In a liquid fund, redemption request has to be submitted within the cut-off time of 3 pm for proceeds next day morning.

Investors should earmark funds that may be required in an emergency and park that component in a bank savings account/term deposit and keep the other component in liquid funds of reputed AMCs with a track record and reasonable quantum of assets under management.
 

The NAV of the funds is published every day and the AMC running these funds offers daily purchase and redemption at NAV-based prices

Income Tax Section 80CCF Tax Saving Infrastructure Bonds FAQ

Posted: 02 Dec 2011 10:57 AM PST

What is new about Sec 80CCF?

It's just a new section that allows Non Banking Financial Companies (NBFCs) to issue infrastructure bonds, and investors who invest money in these bonds can get an additional tax benefit.

What is the additional tax benefit under 80CCF?

All of you know that you can reduce your taxable income by investing in certain instruments like tax saving fixed deposits, or tax saving mutual funds, but the limit on the deduction from your taxable income is Rs. 100,000.

So, if you invest Rs. 150,000 in tax saving mutual funds – the tax benefit will be capped at Rs. 100,000.

Section 80CCF allows you to invest an additional Rs. 20,000 in infrastructure bonds, and have that reduced from your taxable income in addition to the Rs. 100,000 deduction you get from the other instruments.

Section 80CCF Infrastructure Bond FAQs

Will I get the tax benefit every year, or just one year?

You will get the tax benefit only in the first year, which means that if you buy bonds worth Rs. 20,000 in this year – Rs. 20,000 will be deducted from your taxable income while calculating tax this year

There is no tax benefit from next year onwards.

I have  a tax liability of Rs. 12,000 – will that become zero if I buy bonds worth Rs. 12,000?

No, that's not how they work. Buying the bonds will not lead to a reduction in the tax paid by reducing that amount from your tax burden.

The benefit comes from reducing your taxable salary by the amount of your investment, so that the final tax burden is reduced.

Is there TDS on the interest?

For bonds that are issued only in electronic format there is no TDS, however that doesn't mean that there is no tax on them.

Is the interest from these bonds tax free?

While there may be no TDS on the interest on these bonds, they are taxable, and the interest will be added to your income, and it will be taxable.

Do I need a Demat Account to invest in these infrastructure bonds?

Every bond issuer has different terms, and it depends on what their terms of issue are, but the IFCI issue is open only for Demat account holders, while the IDFC and L&T issues were available to people who wanted to subscribe via physical form as well.

Will these 80CCF bonds be listed on a stock exchange?

Yes, the bonds will be listed on a stock exchange, however they come with a lock in period, and you can't sell them before the lock in period. For example, the IDFC bond had a lock in period of 5 years, so you can't sell these bonds within 5 years, but once they list you will be able to sell them.

I missed the existing issues, will there be new infrastructure bond issues?

Yes, there are going to be more 80CCF infrastructure bond issues in the future, and if you missed the earlier ones, there is still a chance to get these bonds.

What tax proof will I get if I applied for the infrastructure bond in dematerialized form?

You will get allotment advice in the mail that you can use for tax proof, and if you haven't received the proof then some people have been advised that they can use the copy of their Demat holdings to show that you own the bonds.

Can NRIs invest in Section 80CCF bonds?

The bonds that have been issued so far haven't allowed investments from NRIs, and I think there might be some clause which limits NRIs from investing in these bonds.

Since I need a Demat account to buy these bonds, will I need a broker to exercise the buyback option?

You won't need a stock broker to exercise the buyback option. In the case of IFCI you can write to them and ask them to exercise the buyback, and in the case of IDFC and L&T they can exercise it by buying it back from you and crediting your bank account, so you don't need a broker.

You will need a broker if you decide to sell it on the exchange though.

When will I receive the physical allotment advice letter, and when will I start seeing them in my Demat account?

This is a question that has been tormenting a lot of people because the companies issuing these bonds don't bother to communicate when the bonds will be allotted or when they will send the allotment advice letter.

No one can say for sure if the company doesn't communicate this, but I've seen that the past couple of issues have taken about 3 – 4 weeks from closing of the issue to credit the bonds, and then an addition 2 or 3 weeks for the letter to arrive.
 
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Download Section 80CCF Tax Saving IDFC Infrastructure Bonds Application Form

 

https://sites.google.com/site/infrabondapplications/home/IDFC-Infrastructure-Bond-Application-Forms

 

Download Section 80CCF Tax Saving L&T Infrastructure Bonds Application Form

 

https://sites.google.com/site/infrabondapplications/home/l-t-long-term-infrastructure-bond-for-year-2011---2012

 

Find a collection canter:

 

Collection canter near you

 

Bank of India to start mutual fund business in December 2011

Posted: 02 Dec 2011 10:09 AM PST

 

GOVERNMENT-run lender Bank of India (BoI) has decided to advance its proposed re-entry into the mutual fund business by a few months to December.

"We are working on it (mutual fund business). By December, I suppose, we should have something in place," Bank of India chairman and managing director Alok Misra said.

He refused to give more details on the business model saying the bank is working out the details. He also refused to say whether it will be a joint venture or not.

Earlier this year, the bank had said it would launch its mutual fund business by early 2012 and was scouting for a partner.

It was also reportedly in talks with Bharti Axa Investment Managers and Pramerica AMC, which were planning to sell their stakes.

Bank of India was in the mutual fund business in 1990. Of the six schemes launched by the fund, four had been redeemed and two schemes transferred to Tauras Mutual Fund after giving exit option to investors in 2004.

Banks generally enter the mutual fund space as they can leverage their branches for distribution, which in turn would help cut cost of delivery, thus, improving business efficiency.

At present, there are eight mutual funds either fully or partly owned by banks, along with overseas partners. These include Baroda Pioneer Mutual Fund, Canara Robeco Mutual Fund, ICICI Prudential MF, Principal MF of PNB and SBI Mutual Fund, Axis MF, IDBI Mutual Fund and Union KBC MF of Union Bank. There are 40 mutual fund players in the country with average asset under management of over Rs 7,00,000 crore.
 

HDFC Mutual Fund Launches the NFO - HDFC FMP 370D December 2011 and HDFC FMP 92D December 2011

Posted: 02 Dec 2011 09:15 AM PST

 

HDFC Mutual Fund has announced the launch of HDFC FMP 370D December 2011 (1) and HDFC FMP 92D December 2011 (1).


The new fund offer will be open for subscription from December 9, 2011 for both the schemes and will close on December 13, 2011 & December 14, 2011 for FMP 370D and FMP 92D, respectively

 
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Download Section 80CCF Tax Saving IDFC Infrastructure Bonds Application Form

 

http://www.docstoc.com/docs/105113341/IDFC-Long-Term-Infrastructure-Bond-Tranche-1-Application-Form

 

Download Section 80CCF Tax Saving L&T Infrastructure Bonds Application Form

 

http://www.slideshare.net/PrajnaCapital/lt-long-term-infrastructure-bond-tranche-1-application-form
 

Find a collection canter:

 

Collection canter near you

 

 

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Download Mutual Fund Applications

Download Application Forms, Additional Purchase Forms, SIP / STP / SWP Forms, ECS Stoppage Forms, and Other Service Forms for ALL Mutual Funds from this single location.

 

Download Mutual Fund Applications

 

Buy Mutual Funds Online by selecting the Mutual Fund Schemes.

 

Invest in Mutual Funds Online Mutual Funds Online

Union KBC Taxsaver - ELSS Mutual Fund

Posted: 02 Dec 2011 07:32 AM PST



Union KBC Mutual Fund has launched the Union KBC Taxsaver, an equity linked savings scheme (ELSS). This is the second offering from the fund house in equity funds space.

THE SCHEME

The scheme is an open-ended scheme that aims to generate income and longterm capital appreciation by investing in a portfolio of equity and equity-related securities. Under section 80C of the Income-Tax Act, investors can claim tax deductions on investments up to . 1 lakh in the scheme. The investments in this scheme are locked in for three years from the date of allotment of units.
The fund can invest 80% to 100%of the money in equity and equity-related instruments and up to 20% in debt and money market instruments. The investment team shall follow an active strategy to manage the assets of the fund keeping in mind the composition and performance of the benchmark. The BSE 100, a fairly diversified index, will be the benchmark for the scheme.

 

Ashish Ranawade will be the fund manager. A combination of bottom-up and top-down approaches will be used while making investments for the scheme. The minimum investment in the scheme is . 500 and in multiples of Rs 500. It also offers the systematic investment plan option. There is no entry load or exit load. First-time mutual fund investors investing more than Rs 10,000 will be charged Rs 150 towards transaction cost. Investments of over Rs 10,000 will also attract a transaction charge of Rs 100. You can choose between the growth and dividend options. The NFO closes on December 9 and the scheme will re-open for investment on December 23.


You can consider them scheme if you are looking to invest in equities with a long-term view and want capital appreciation along with tax-savings.


The scheme invests in equities and that adds to the risk of an investor's portfolio. The scheme invests in equities and that adds to the risk in investor's portfolio. Also, there are other taxes saving schemes with proven track record.

 

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Download Section 80CCF Tax Saving IDFC Infrastructure Bonds Application Form

 

http://www.docstoc.com/docs/105113341/IDFC-Long-Term-Infrastructure-Bond-Tranche-1-Application-Form

 

Download Section 80CCF Tax Saving L&T Infrastructure Bonds Application Form

 

http://www.slideshare.net/PrajnaCapital/lt-long-term-infrastructure-bond-tranche-1-application-form

 

Find a collection canter:

 

Collection canter near you

 

 
-------------------------------------------
 

Download Mutual Fund Applications

Download Application Forms, Additional Purchase Forms, SIP / STP / SWP Forms, ECS Stoppage Forms, and Other Service Forms for ALL Mutual Funds from this single location.

 

Download Mutual Fund Applications

 

Buy Mutual Funds Online by selecting the Mutual Fund Schemes.

 

Invest in Mutual Funds Online Mutual Funds Online
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