Sunday, December 4, 2011

Prajna Capital

Prajna Capital

Infrastructure Bond Investment Tax Ssvings under Section 80CCF - IDFC and L&T

Posted: 03 Dec 2011 08:59 PM PST

You can download the Infrastructure Bond applications below:
 
 
 
Find a collection canter:  Collection canter near you
 

Documents Required:

 

1)      Filled Up Application

2)      Copy of the PAN card (Self-attested)

3)      A Cheque Rs 20,000 in favour of "INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED - INFRA BOND TRANCHE 1"

4)      KYC Documents: Self-attested copies of the following documents are required to be submitted by the Applicants as KYC Documents:

a.       Proof of identification for individuals: Any of the following documents are accepted as proof for individuals:

Ø      Passport

Ø      Voter's ID

Ø      Driving Licence

Ø      Government ID Card

Ø      Defence ID Card

Ø      Photo PAN Card

Ø      Photo Ration Card.

 

b.      Proof of residential address: Any of the following documents are accepted as proof of residential address:

Ø      Passport

Ø      Voter's ID

Ø      Driving Licence

Ø      Ration Card

Ø      Society Outgoing Bill

Ø      Life Insurance Policy

Ø      Electricity Bill

Ø      Telephone Bill (Land/Mobile).

Future Generali Secure Income - A traditional endowment cum money-back plan

Posted: 03 Dec 2011 08:45 AM PST


Future Generali Life has launched a traditional endowment-cum-money-back plan called Secure Income. This plan, like some other child plans launched by insurers to mark Children's Day (November 14), is also targeted at parents intending to save for their child's future.

The features are similar to other endowment or moneyback plans available in the market. Under the plan, policyholders can choose the amount of sum assured, premium payment term and also the period during which they would like to get regular cashbacks — that is when the money-back can kick in and for how long. Premium paying term extends from 10 to 30 years, while the cashback period can range from five to 35 years. The total policy tenure will be the premium payment term plus the cashback period for regular, limited premium term plans. Like all endowment plans, you will also be entitled to accrued bonuses at the end of the premium payment term.


The minimum annual premium is . 10,000. The upper age limit for buying the plan is 60 years, while the tenure can range between 15 and 65 years. On completion of the premium-payment or accrual period, the accrued compounded reversionary bonuses will be paid. During the cash-back period, 5.5% of the sum assured is paid annually in addition to any cash bonuses till the end of the policy term. On maturity, the policyholder stands to receive the sum assured plus the terminal bonus, if any, as maturity benefit. In the event of the demise of the life assured during the premium-paying term or the accrual period, the sum assured plus the accrued bonuses will be paid to the nominee, over and above any cash-backs received, provided all the due premiums are paid.

The plan also offers accidental death, term benefit and premium waiver benefit riders.

Risk-averse policyholders who are convinced about the merits of an endowment plan can consider this product.

Like all endowment and money-back plans, the product lacks transparency in its charge structure.
 

What to do with DIVIDEND INCOME

Posted: 03 Dec 2011 08:17 AM PST

Investors tend to give a lot of time and importance to the process of selecting amutual fund. However, one may not really be particular about the kind of investment options the fund allows him. One can choose between the dividend or growth option of a fund. Choosing the correct option is perhaps as important to the health of the investment as choosing the particular mutual fund. Let us look at the various factors, one should consider before taking a decision and why.

 

MAXIMISING GAINS

 

Factors that are of prime importance when choosing the investment option — are the policy on taxation and your own investment needs and goals. Both these factors play an important role and let us see how we can tweak each for the maximum benefit.

 

Benefits and drawbacks of choosing the dividend option. Let us look at the benefit of choosing the dividend option. Mutual fund houses always sell the dividend options as a tax-free option. But between, debt and equity schemes, only equity schemes are truly tax-free. The dividends received from non equity-oriented schemes are subject to a distribution tax (DDT) of 12.5 per cent. This is not be taxed at the hands of customer but it still means that you are receiving 12.5 per cent lesser than what you would have otherwise received. Which by inference means that it is you who is bearing the 12.5 per cent tax, the mutual fund only pays it on your behalf. However, for those investing in equity schemes, the dividends are truly tax-free.

 

Then shouldn't all investors choose the dividend option? Let's not jump to conclusions so fast. Let's consider an example, that of HDFC Equity Fund, a scheme that has been in existence since December 1994.

 

As on November 15, the net asset value (NAV) for the growth option of HDFC Equity Fund was `240.63 whereas that of the dividend option was `40.65. Why is this? The difference of `199.98 per unit is largely nothing but your own money paid back to you (by calling it dividend). The investor who has chosen not to receive the dividend is owed `240.63 per unit by the scheme whereas an investor choosing the dividend option is owed only `40.65.

 

It should be understood that dividend from a mutual fund, unlike a stock dividend, is your own money coming back to you. Therefore, had you invested in the growth option of the scheme, the NAV of `240.63 would apply to you. But since you have chosen the dividend option, periodically, some of your invested amount was paid back to you (by calling it dividend) and hence the market value of your units is `40.65. Now, also note that the scheme performance is calculated based on the growth option NAV. Actually, technically, it doesn't matter, which NAV is chosen, as the dividends received are assumed to have been reinvested in the scheme at the Internal Rate of Return or the IRR. But without going into the mathematical jargon, suffice it to say that the fund performance (which has been nothing less than spectacular) is based on the NAV of `240.63 and not `40.65.

 

So far so good. As long as you needed the dividend, all this really doesn't matter. But, what to do you do when the dividend comes and sits in your bank? Do you reinvest it in the same scheme or for that matter into another similar scheme? If so, do realise that you are reinvesting the money in the same asset class - equity. It needn't have come out of the asset class (in this case HDFC Equity) in the first place! The second problem is that you may forget that the scheme has paid dividend and the money is lying in your bank. At times, one may let the money lie simply because the market is volatille and one would rather delay one's decision to enter.

 

This will result in a fall in your rate of return. Because, the capital invested in the fund is growing at the IRR as discussed above (around 19 per cent over 3 years and almost 20 per cent since inception), while the dividend in the bank is growing at just 4-6 per cent per annum which may be the savings bank interest rate after deregulation. Over time, this substantial difference in the two rates dilutes the net return on the investment. More the time spent in the bank, more the dilution.

 

OPT FOR TAX ARBITRAGE

 

Of course there are a couple of excellent reasons for choosing the dividend option. The first one is of course that you may need the funds for day to day life. The second one is that getting dividend in a rising market is like partial profit booking. The funds representing dividend can be invested into fixed income avenues thereby rebalancing the asset allocation.

 

Or take the case of debt funds. If your investment time frame is less than one year, by choosing the growth option you would be subjecting yourself to short-term capital gains tax. Short-term capital gains are to be added to your other income and taxed at the slab rate applicable to you. Which means that if you fall in the highest tax bracket, you will end up paying 30 per cent tax on the short-term gains. You would be much better off choosing the dividend option and bearing the distribution tax of 12.5 per cent . This strategy is known as tax arbitrage.

 

A further refinement of the above strategy is to choose the dividend reinvestment option. This way, each dividend that is paid is allotted units and the dividend itself becomes the cost of such units. Ultimately, you will find that the short-term gains are further reduced on account of this notional cost.

 

The psychology of investing, the taxation on the returns and your requirements from your investments, all go hand in hand in deciding the optimal option to choose from.

 

If young, choose the growth option. But if you are earning dividends, invest it to maximise gains
 
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