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- Invest in different assets for alpha returns in the portfolio
- Taxability of second House under Income Tax Act, 1961
- Star Union Dai-ichi Pure Term Assurance Plan
| Invest in different assets for alpha returns in the portfolio Posted: 12 Dec 2013 03:33 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Investors are aware that diversification of investments helps in mitigation of risk and steadying their returns. However, after diversification what should be their expected return from an individual asset class and from the portfolio is atricky question.
Typically, the retail investors look at fixed deposits, bonds, equities, equity mutual funds, gold and real estate for investments. All these asset classes have different risk profile and returns. So what should be the return from the individual asset class and from the portfolio. This is an important aspect and needs to be identified before embarking on the investment.
Let us look at these asset classes and the return expectation from them.
Bank fixed deposits:
Placing deposits with banks is most preferred instrument by the retail investors. In India, public sector banks are considered to be the safest investment destination as they have sovereign holdings. The current interest rate for one year deposit offered by State Bank of India( SBI) is 9 per cent. The rate offered by SBI is considered as a benchmark by most of the banks and accordingly rate offered by them is +/- 0.25 to 0.50 per cent/. In case any bank is offering more than 0.50 per cent than this benchmark rate, the investor needs to look at the profitability and solvency of such banks.
Deposits up to ₹ 1 lakh with commercial banks and specified co- operative banks is guaranteed by Deposit Insurance Guarantee Corporation of India. The deposit from Post office and govt savings bonds earn lower than bank fixed deposits as they are most secured.
Bonds and debentures: A fundamental difference between bank fixed deposit and bonds is that fixed deposit is not transferable and hence cannot be traded, however bonds are transferable and can be traded. As a result, you can earn capital appreciation in case interest rates go down and you hold a bond with higher interest rate. The typical return from bonds is 0.50 to 1 per cent higher than long term bank fixed deposits. In case they are issued by private Non- Banking Financial Companies, it can be 2 to 3 per cent higher due to their higher risk profile.
Equities: Equities as an asset class are risky in nature. Hence one expects higher returns as compared to relatively safe instruments such as bonds and fixed deposits. Return expectations in case of equity can be linked to the time horizon. For example if you want to hold the investment for say 1 year, you can have a return expectation of say 10 to 15 per cent. If you wish to lock it for 5 years, you can look at an absolute return of 50 to 60 per cent ( annual approx. 12 to 15 per cent). If the time horizon is higher than that then you can look for annual return of say 15 to 20 per cent. Also this return expectation should be in line with the general market returns that is the return generated by Sensex or Nifty. The one year return for Nifty is roughly 11 per cent and five year annual return is about 23 per cent.
NIFTY
Equity mutual funds: The returns from equity mutual funds will be required to be slightly moderated as they have a diversified portfolio as well as have to keep certain percentage in cash or cash equivalent. So if the expectation from pure equity investment is say 15 per cent then the return from equity oriented mutual fund could be about 12 per cent.
Real estate:
Investment in real estate has to be for long term due as its incidental costs like brokerage and stamp duty, are high. The return from real estate can be by way of rental income or capital appreciation or both. It is important to note that the house in which you reside should not be considered as investment as it is for self consumption.
Usually the rental yields differ in metro and non metro areas. Metro areas give a rental yield of approx. 3 to 5 per cent. Whereas, that in non metro areas, it can be slightly lower in non metro areas. Capital appreciation can be in the range of 12 to 18 per cent annually. One important aspect to consider is that property is less liquid as compared to other assets.
Gold:
Typically return from gold is linked to inflation. When there is high inflation, the gold price increases and vice versa. When equity market is bullish, the gold prices are subdued. However when the market is bearish, the gold prices show an increasing trend. Ideally a return expectation of 10 to 12 per cent is reasonable.
Portfolio returns:
The return from the portfolio is a combination of all the investment that you have made and been able to liquidate. A return of 10 to 12 per cent in todays world is what can look at. In case the markets are very bad, this can be difficult to achieve too.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
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| Taxability of second House under Income Tax Act, 1961 Posted: 12 Dec 2013 03:00 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
People buy a second home for many reasons, which, inter-alia, include as an investment for capital appreciation; to use it as a holiday home; to get a regular stream of income by way ofrentals; or to diversify their investment portfolio.
However, it is important for an individual, who is planning to buy a second home, to understand the tax implications under the Income-Tax Act 1961 of owning and maintaining the second home.
Second House is Self-Occupied
If an individual owns more than one house property for his use, then under the provisions of theIncome Tax Act, 1961 (the 'Act'), any one property as per his choice is treated as self-occupied and its annual value is computed to be nil. The other house property is deemed to be let-out and a notional rent as per the provisions of the Act is computed as the taxable income under the head 'Income from House Property'. In other words, the second house is treated as being rented-out and its estimated rental income is treated as taxable income.
Even vacant house has tax implications
If you own more than one Self Occupied Properties (SOP), you have a choice to treat any one of the properties as SOP. The other such property (ies) which lies vacant will be treated as Deemed Let Out Property (DLOP) under the Act. If a property is treated as a DLOP, it is effectively put at par with a let out property as far as taxation is concerned. Hence, a notional rental value (method to calculate such value prescribed under the Act) is considered as the gross taxable rent for such property. You are allowed to claim a flat deduction of 30% for repairs and maintenance charges.
Second home is used as a holiday home
As the benefit of self-occupied property is available for only one home, the estimated annual rent will be considered as the taxable value.
Second House is Let-Out
If the second house is let-out to a tenant, the actual rent received, subject to certain conditions, is treated as the taxable income under the head 'Income from House Property'.
Deduction for Municipal Taxes
The taxes paid to the local authority, generally the municipal taxes, are allowed as deduction in the financial year, in which such taxes are actually paid. This is irrespective of whether these taxes pertain to the current financial year or the earlier year. Therefore, an individual should keep a track of the municipal taxes paid and claim this deduction accordingly.
Deduction for Repair & Maintenance
Further, a sum equal to 30% of the annual value of the house property is allowed as deduction towards repair and maintenance charges. It is pertinent to note that this deduction of 30% is a fixed percentage, irrespective of the actual amount incurred by the individual i.e., irrespective whether an individual incurs more or less amount, he can only claim a deduction for 30% of the annual value of the house property.
Interest Deduction
Whether the second house property is deemed to be let-out or actually let-out, the actual interest paid on the housing loan is allowed as deduction. This is contrary to the case of a self-occupied property, wherein the maximum interest on housing loan is restricted to Rs 150,000 p.a., subject to certain conditions.
Effectively, if Assessee owns more than one house property & is kept for own use,
o one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
o Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above.
In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C.
WEALTH TAX ACT, 1957
a) Under the Wealth tax Act, 1957, Section 5(1) indicates that an assessee can hold one property as a self occupied property and the same be exempt from eligible assets liable to Wealth tax.
b) If an assessee, holds more than one property, then the second property for the purpose of Wealth tax has to be valued as per the Wealth Tax Rules 1958 and the value in excess of Rs. 30,00,000/- is liable to Wealth tax. However if there is any liability against the said asset, the same is to be deducted before computing the taxable wealth.
c) If the assessee holds more than one property and the second property as let out for more than 300 days in previous year, then such property is not considered as eligible asset for calculation of taxable wealth.
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Star Union Dai-ichi Pure Term Assurance Plan Posted: 12 Dec 2013 02:24 AM PST Invest In Tax Saving Mutual Funds Online Call 0 94 8300 8300 (India)
Star Union Dai-ichi Pure Term Assurance Plan
Happy Investing!! We can help. Call 0 94 8300 8300 (India) Leave your comment with mail ID and we will answer them OR You can write back to us at PrajnaCapital [at] Gmail [dot] Com
--------------------------------------------- Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.
Invest Tax Saving Mutual Funds Online Tax Saving Mutual Funds Online These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)
Download Tax Saving Mutual Fund Application Forms from all AMCs Download Tax Saving Mutual Fund Applications
These Application Forms can be used for buying regular mutual funds also
Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )
------------------ Best Performing Mutual Funds
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