Monday, August 8, 2011

Prajna Capital

Prajna Capital

Mutual Funds: International Funds

Posted: 08 Aug 2011 05:34 AM PDT

 

   International mutual funds have been on a roll. Seven of the top-10 equity funds in the past year have been international funds. We have been recommending international funds for diversification purposes. There are several compelling reasons why you should take a close look at them.

Politicians would like us to believe the rise in food prices is a temporary phenomenon. As a country industrialises and modernises, cropland is used for industrial and residential development and takes valuable land away from agriculture... as rapid industrialisation pulls labour out of the countryside, it often leads to less double cropping, a practice that depends on quickly harvesting one grain crop once it's ripe and immediately preparing the seedbed for the next crops. This scenario is already playing out in China, the world's largest producer of rice and wheat, and that is likely to be the case in India (world's second largest producer of rice, wheat) and other countries, pushing up global food prices.


Politicians have a role to play in deciding the food prices. Take the case of Thailand, where incoming prime minister Yingluck Shinawatra won the election by promising to pay rice farmers a minimum of 15,000 baht per tonne, against the current price of 9,000 baht per tonne. Thailand is the largest exporter of rice in the world and accounts for nearly 30% of the world trade. The export price of Thai rice is the de facto price at which rice is sold internationally. This move, if implemented, as it is likely to be, will push up rice prices worldwide. It means that the export price of Thai white rice will spike up by 60%... to at least $800 per tonne.


So how do you benefit from this trend of rising food prices? The opportunities available in the Indian market are fairly limited. But you can look to exploit the opportunity by investing in funds like the DWS Global Agribusiness Offshore Fund and Birla Sun Life Commodity Equities - Global Agri Ret Fund.

Hydrocarbons have largely driven the industrial revolution over the last two centuries. Petroleum is a liquid form of carbon, whereas natural gas is a gaseous form. Coal, which is an impure form of carbon, has been used to generate massive amounts of power used by industries.

A small window of time, about 250 years, from 1800 to, say, 2050, hydrocarbons partially removed the barriers to rapid population growth, wealth, and scientific progress. In fact, courtesy the industrial revolution, more ores and industrial commodities were found and dug up. This, in turn, led to stable commodity prices. The 102 years to 2002 saw almost each individual commodity — both metals and agriculture — hit all-time lows... the prices fell by an average of 70% in real terms.


However, since 2002, commodity prices have been on a bull run. The indiscriminate use of hydrocarbons and the other industrial commodities, which have been the backbone of the industrial revolution, has given rise to fears that the world would run out of them. We took the nice, simple, easy stuff first from Australia, we took it from the US, we went to South America… Now we have to go to the more remote places.


Playing this theme requires stocking up on stocks of companies dealing in commodities as well as oil and other forms of energy. Again, the opportunities in the Indian stock market are not much. So the international mutual fund route makes sense. You could look at mutual funds like DSP Blackrock World Mining Fund, DSP Blackrock World Energy Fund, Fidelity Global Real Assets Fund and ING Optimix Global Commodities Fund. These funds have done well over the past year and are likely to continue to do well, given the strength of their underlying theme. As the famous investor Jim Rogers said in an interview: "If the world economy gets better, I earn money on commodities. If the global economy gets worse, then they will print more money and I will make money in commodities."

Governments the world over have been printing more and more money to revive their moribund economies. This has led to a set of investors questioning the future of paper money. Also, more money is being diverted into precious metals like gold and silver. While investors in India can invest in gold through gold exchange traded funds (ETFs), there is also the option of investing in international funds primarily investing in gold and silver mining companies. This is slightly risky than investing in gold ETFs because the share prices of gold and silver mining companies tend to fall faster than the price of gold, ie, if the price of gold falls. Investors looking to play this theme could look at AIG World Gold Fund and DSP Blackrock World Gold Fund. We have been recommending DSP World Gold Fund/AIG World Gold Fund for indirect positions in gold and silver.

Since these funds do not invest in Indian stocks, they are categorised as debt funds when it comes to taxing the capital gains. But that should not dampen investor prospects. Even in case of investing in property, there is a capital gain tax to be paid. But we all do invest in it. These funds also suffer from currency risk. The money invested in international funds is ultimately converted to dollars. And upon redemption, the dollar amount has to be reconverted into rupees. In the interim, the exchange rate movement will impact the net return. For example, if the rupee strengthens against the dollar (as it has in the recent past), the total return will be diluted to that extent.


Before looking at international MFs, investors should have their investments in Indian stocks and funds in place. Such funds should be looked at only if the core investments are in place. Between 5% and 15% of the portfolio's assets can be invested in these funds.

 

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Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html

 

4) Sundaram Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html

 

5) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

6) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

7) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

8) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

9) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

 

Make your credit card work for you

Posted: 08 Aug 2011 04:26 AM PDT

As charges, penalties rise it is wise to keep your usage under check. THE office computer is a better place for online credit card transactions

THE irksome telemarketing callers promising lifetime free credit cards and the badgering credit card agents who hound on every person stepping out of an ATM, promising free cards, appear to have become a lost breed.

Credit card companies over the last two years have consciously cleaned their books and ensured that their customer profile consists only of responsible users.

As a result, the penalties for even the minimal faults and the charges for every small service availed from credit card companies have also gone up steeply. Credit card users would be better off checking if their card really works for them.

How many credit cards do you need? Since, most of us have at least one debit card, usually linked to the salary account, having one credit card should meet your requirements. In case of a person who does not work for a regular monthly income and gets money in cycles and is also confident of tracking and making payments at the right times, two cards would be advised, of course if they come free, experts say.

Is upgradation really beneficial?

Credit card customers having a decent track record are usually asked if they wanted to upgrade to a gold, platinum or premium card, with a higher spending limit. Upgradations are helpful if your salary has increased from the time you got the card and your expenses have also gone up. Few companies promise free personal accident cover on upgradation or other benefits. There could, however, be a catch here, like the travel that caused the accident has to have been paid by the credit card and so on


Fuel surcharge discount isn't a rebate on fuel price: Many credit card companies promise a 2.5 per cent discount on fuel surcharge.


It only means that the 2.5 per cent of the fuel bill that you would incur when using credit card to pay for your fuel bill would be waived off. It does not mean any discount on the actual price of the fuel. Few other card companies promise a zero per cent fuel surcharge. Both means the same.


Office is the best place to pay your bill online: Contrary to the belief that our personal desktop PCs or laptops are the safest places to pay credit card bills online, experts say that office computers are far safer.

The latest anti-viruses and firewalls present in office computers are far superior in terms of security of data than home computers. So, for those paying their credit card bills online, the office computer would be the better place.

 

Learn how Ulips can help and protect your long term financial goals

Posted: 08 Aug 2011 03:14 AM PDT

 

UNIT linked insurance plans (Ulips) are often compared with mutual funds as an investment option. They have similarities as both provide an opportunity for market-linked returns, be it from equity or debt or balanced exposure. While, the investment philosophy of a Ulip centres around medium to long-term investment goals, mutual fund investments can also be pursued for short-term goals.

Ulips provide a unique opportunity for a customer to plan for ones financial goals as also protect them from the risk of death and disability from the first day.

While, the primary objective of life insurance is to protect the income for financial sustenance of dependents, Ulips is that form of life insurance, which in addition to protection of the income, also provides an opportunity to plan for the financial goal by saving for it.

However, this can be best achieved only if a Ulip is purchased with the appropriate amount of risk cover, referred to as the sum assured (SA), so that the financial goal is protected from the first day.

To understand this further, let's take the example of One who is 32 years old and needs to save for his son's higher education. The child is three years old and the money for higher education is required 15 years hence. He needs Rs 8,00,000 in today's value to fulfill this need, which will be Rs 16,60,000 when his son is 18 year old due to the impact of inflation at 5 per cent. The annual premium to save for this goal with a Ulip is around Rs 58,000, assuming the general tendency to take the SA protection of just 10 times the annual premium.

Now, in the case of this plan, the entire goal of the customer is not protected.

The SA at 10 times the annual premium is only Rs 5,80,000 – which is merely 35 per cent of the goal amount of Rs 16,60,000. In case of early death of he, the higher of Rs 5,80,000 or fund value only will be available for the family. Also, if he falls critically ill, in all possibility, most of his savings will go towards health expenses, which may be for a period of anything between three to six months or even more.

Now, let's look at a scenario where in the same plan, one opts for a higher SA multiple so that the SA is Rs 16,60,000 at inception, adds the family income benefit rider as also opts for a critical illness rider (CI) cover of Rs 10,00,000 each. The annual premium goes up to Rs 65,000 approximately, which is just around Rs 580 more per month than the premium in the earlier example where the goal was protected to the extent of just 35 per cent. With an additional premium of Rs 580 per month, his family is now entitled to the following benefits:

On survival through the plan, the fund value is expected to give him Rs 16,60,000 for his son's higher education.

■ In case of unfortunate and untimely death, the nominee will get the full sum assured for the child's higher education.

■ At the same time, the family income benefit will kick in and the family will get a regular monthly income of Rs 10,000 (1 per cent of the FIB sum assured of Rs 10,00,000) for 100 months or term of the plan, whichever is earlier.

 

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Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html

 

4) Sundaram Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html

 

5) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

6) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

7) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

8) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

9) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

 

Change your strategy Investment strategy according to Stock market conditions

Posted: 08 Aug 2011 02:17 AM PDT

 

   For an investor, change is a constant factor, and hence, what was good in the year 2000 need not be good a decade later. Similarly, what helped the investor make money in his 30s need not be replicated when he turns 60. There are different ways of managing change and adherence to these simple steps will help an investor in change management.
   
Here are some tips:

Re-visit goals at regular intervals


    This is probably the easiest thing to do in finance management as we all know what we need. For instance, when we begin our career life, we are happy with a single car and a nice little flat/house. The necessity for both grows in size with age and more importantly, it is an affordable dream in many cases.


   However, funds for them needs to be planned and hence, it is important to update the goal sheet at regular intervals.


Enhance savings and investments


    An adage about savings is 'you should always save an amount which is difficult to manage'. However, the money set aside towards savings or investments, doesn't pose a challenge beyond a point. Instead of feeling good with the savings amount, it helps if you keep stretching the limit to the maximum possible at all times.


   This is possible only when money inflows and outflows are reviewed at regular intervals. A review once in 3-5 years is an ideal timeframe for all categories of investors.


Re-assess your risk profile


    The risk-taking ability of an investor is invariably related to his age, his financial comfort and his goals. Since all three components change over a period of time, we can safely assume that an investor's risk appetite too needs to be reviewed at regular intervals. In many cases, the risk-taking ability is dependent on the fund needs and period at the disposal for the investor.


   Hence, a regular review of the investment portfolio is a necessity to align all factors to build the needed corpus to meet financial requirements and investment objectives that have been set.


Asset allocation


    The implementation of these three factors should take care of most of the concerns of the investors as they provide the much-needed purpose for wealth creation, means for achieving it and more importantly, help in building the right investment pool in line with the needs.


   However, wealth is not created merely by increasing the contribution but by boosting the overall portfolio returns. Here, the word 'overall' is the key as it focuses on the portfolio returns rather than product returns.


   Hence, an investor needs to build a basket of products rather than focusing on a single scheme or instrument while building wealth. This reduces risk and also ensures better asset allocation which is the key to managing money. The exercise again comes with the usual caveat. Change the basket mix according to the financial goals and changing times.

 

Choose Global Mutual Funds only for Diversification

Posted: 08 Aug 2011 01:22 AM PDT



Global mutual funds seem to be the flavour of the season with most financial advisors. And why not? These funds have given nearly four times there turns of the domestic markets. But before you jump in to ride the bandwagon, it's essential to be aware of little known facts about such funds that may get overlooked when your advisor highlights their USPs.

Global Fund Should Be Global:

If you are looking for global exposure, it's very important to choose the right fund, because in India, some mutual fund schemes, although mandated to invest in global equities, have allocations heavily titled towards domestic stocks. The global exposure can be as low as 20% to 25% of the fund's assets. Such low allocation dilutes your portfolio's consolidated exposure to the global markets. Your investment goals could then go for a toss.

Diversification:

Investors often invest in global funds without caring about the economies and regions the fund is targeting. It's important to note that the true benefit of global diversification will be achieved only when you diversify across economies that react differently to global events or at least share low correlation with each other. With a majority of your portfolio invested in India, you would not derive much global diversification if your fund invests in other emerging economies like Brazil and China as these markets usually move in tandem.

Hidden Expenses:

Some global funds are feeder funds — they invest their corpus in their parent fund abroad, which, in turn, would invest in global equities. This three-tier structure adds to the expense quotient of your fund, which can eat into your yield in a big way in the long term. For instance, Blackrock World Gold Fund — the parent fund of DSP World Gold Fund — has an initial charge of 5% and annual management fee of 1.75%.Thisisoverand above what your domestic fund charges you.

Additional Risks:

If your investment goes global, your risk does, too. Global investments will be subject to geo-political, economic, and country-specific risks, and also currency fluctuations. So, your global fund will be more prone to the Japanese tsunami and Greece default than an Indian fund. This, however, need not necessarily be the case, as India itself is a high-beta emerging economy and different countries react differently to news flows.

Taxation:

Global funds are treated as non-equity funds and taxed accordingly. Thus, long-term capital gain, ie, profits booked after one year of investment, would be taxed at 10% without indexation or at 20% with indexation. Short-term capital gain would be taxed as per your tax slab. Thus, it could be as highas30%.But,if your fund has a mandate to invest at least 65% in Indian equities and the rest in foreign securities, it will be at par with Indian equity funds and treated accordingly for tax purposes.

Track-Record:

If you are going for a global fund-of-fund, your fund-selection task can be easier as these funds invest their corpus in their parent global funds that have been in existence for some time. You can track the performance of the parent funds for the last three to five years (wherever possible) and benchmark the same against global indices like MSCI World Index or MSCI EMEA. Thereafter, you can take the final call on whether to invest in it or not.

Not Meant For Every Investor:

If you are a new investor, global funds may not be for you not only because of the risks involved in them but also because India is now amongst the best-performing markets globally. Global funds are ideally suited for those who already have their core equity portfolio in place and are looking for some additional equity diversification globally. However, make sure these funds do not constitute more than 15-20% of your portfolio. Amongst global funds, after some introspection, one needs to choose a fund that matches his/her investment needs — both in terms of economy-wise diversification and asset-wise allocation.

 

Silver and its Investment Potential

Posted: 07 Aug 2011 10:27 PM PDT

Silver prices may have crashed, but the list of its industrial uses is only growing and that could keep its prices buoyant

 


   Silver is down. But surely not out. Its prices have been moving in the range of $32-36 per ounce (about . 50,000 to . 55,000 per kg) after crashing from $50 per ounce ( . 75,000 per kg; 1 troy ounce equals 31.1 grams). But, according to experts, the precious metal would continue to be a good investment bet due to its widespread use in scores of industries.


Estimates suggest that a little over half of the demand for silver comes from industrial uses. What makes silver a great metal for industrial use is that it is the best conductor of electricity, the best heat transfer agent, the best reflector of light, a marvellous lubricant and a versatile catalyst and alloy. Despite the fall in demand from traditional areas of silver use, more demand is expected to come from several other industrial uses of silver.

SOLAR POWER

Solar panels needed for solar power use silver. As far as industrial uses of silver go, the solar energy sector is showing the most growth. A study titled The Future of Silver Demand, carried out by GFMS, a precious metals, base metals and steel research consultancy, says: "Over the last decade, this sector's off take has soared from less than 2 million ounces to about 50 million ounces in 2010. This year, the demand is expected to reach nearly 70 million ounces, an increase of 40% year-on-year." David Morgan, editor of The Morgan Report and who runs the website www.silver-investor.com, says: "China has been growing its solar energy base around 100% a year since 2003. India plans to increase its solar output to 20 gigawatts by 2020, starting from basically nothing currently. China continues to project massive growth from the current 5.5 GW capacity to 30 GW by 2020," he says. "The US has forecast a similar amount, perhaps 30 GW by 2020. On a worldwide basis, the generating capacity by 2020 is projected to be 20 to 40 times the amount of current solar capacity."

 
In fact, with the tsunami in Japan bringing the world on the brink of a nuclear disaster, the demand for solar power is expected to go up further. This will fuel the demand for silver. Morgan feels the "solar demand could reach 130 million ounces per year around 2014 and continue through 2020".
The silver production in 2010 was about 750 million ounces.

MEDICAL USES OF SILVER

This is another area where the demand for silver is expected to touch 100 million ounces by 2020, says Morgan. Silver-based cleaners and bandages are being increasingly used throughout the world. Silver is also used in catheters, pacemakers, valves, feeding tubes as well as medical appliances inserted in the human body.

ANTI-BACTERIAL AGENT

Silver has tremendous anti-bacterial qualities. Jeff Nielson, editor of www.bullionbullscanada-.com explains: "My personal favourite industrial application for silver is as an anti-microbial agent. There are literally too many applications of silver making use of this property for me to even list them all." Silver is used in anti-bacterial sportswear to reduce odour, anti-bacterial clothing for soldiers and medical personnel to reduce infections, and in food packaging, anti-bacterial upholstery, etc. The demand for this segment is around 38 million ounces of silver per year, he says. "New uses for silver are being found almost every day, particularly in the biocide arena," says Jeff Clark who authored The Casey Research 2011 Silver Investing Guide. In fact, the Food and Drug Administration in the United States has approved the adding of silver to bottled water to help kill bacteria. "The important point is government approval because this opens the door for major municipalities to use silver for water purification," says Morgan. But there is a caveat. Such demand carries the risk of technological obsolescence. For instance, the digital revolution in image capturing and storing has killed the demand for silver in the photography sector.

IS THERE ENOUGH SILVER?

The GFMS study expects the industrial demand for silver to shoot up from 487.4 million ounces to 665.9 million ounces by 2015. But the question is: where will the silver to service these new uses come from?


As the accompanying table shows, the mine production of silver has gone up by 33% since 1999, but the demand has gone up faster. The difference is met through silver scrap or by reclaiming silver from applications where it has already been used. But it is not easy to recycle silver. As Clark says: "While scrap metal accounts for about 20% of silver's total supply, many of these new applications are difficult to reclaim. Some applications contain such small amounts that they are uneconomic to recapture, such as many of the biocidal and nanotechnology applications. With others, it'll be a long wait. Solar panels, for example, have a 20- to 30-year life. Still others are waiting on more effective recovery programmes; more than half of all silver in cell phones, TVs, computers and other electronics still ends up in landfills."


Given this, analysts expect a deficit situation. In about three years or so, we will see silver in a deficit situation where total supply mining + recycling will not meet total demand. Also, a lot of silver is produced as a by-product of mining of other metals like gold, lead, zinc, etc. So it's not easy to ramp up the supply of silver suddenly. Gold mining has most likely peaked, and a full 13% of silver coming to the surface is a result of gold mining.

PRICE MOVEMENT

The next big rally to begin no later than mid-August, and likely at the beginning of August or even late-July. Morgan expects the rally in the fourth quarter of this year.


As far as targets go, Morgan feels, in the medium term, silver should touch at least $45 per ounce (around . 68,000 per kg); in the long term, it should touch around $100 per ounce (around . 2 lakh per kg). Silver, therefore, still is a good investment bet.

 

Stock Review: Motherson Sumi Systems

Posted: 07 Aug 2011 10:27 PM PDT

The stock price of Motherson Sumi Systems (MSSL) rose after the company announced it would pay ¤141 million ( `888 crore) to acquire an 80 per cent stake in Peguform Group, the European automotive plastic parts supplier. MSSL is planning to execute the deal jointly with group firm Samvardhana Motherson Finance.

Given a debt of ¤166.5 million ( `1,044 crore) the total acquisition cost or enterprise value comes to ¤308 million (`1,931 crore).

While the price paid for the deal at EV/Ebitda of 4.6 times is slightly on the higher side (estimates were at `1,500-2,000 crore), analysts believe that given the synergies, improving margins and manageable debt, the deal is a positive for the Motherson group. Emkay analysts Chirag Shah and Siddhartha Bera feel the acquired entity will be EPS-accretive in the first year, even at a lower Ebitda margin of four per cent (current margins at five per cent) and interest costs on the debt taken to fund the acquisition. Though there will be benefits of an operational improvement at Peguform, the MSSL stock ( `239), which has returned 56 per cent in the past one year, is unlikely to yield much, going by the given price targets of `255-260.

SYNERGIES

While MSSL has a presence in plastic moulding (Peguform's focus), the segment contributes under 10 per cent of turnover. The key benefits from the acquisition will be access to plastic parts technology and improvement of the supply relationship with Volkswagen, which accounts for 60 per cent of Peguform's sales. Says G N Gauba, chief financial officer, Motherson Sumi, "The acquisition will not only help improve our relationship with Volkswagen, Audi and BMW, but also enable us to tap into the technology for supplies in India." While Ebitda margins at Peguform have moved up over the past three years from 3.5 per cent to five per cent, further improvement will be key if Peguform is to improve its margins to match those of MSSL ( see table ).

$5-BN TARGET

The Motherson group has set itself a target of $5 billion, with return on capital employed (ROCE) for the consolidated entity at 40 per cent by 2015. While the company will be able to achieve the turnover target (FY11 turnover $2.7 billion) on the back of inorganic acquisitions (Visiocorp and Peguform), improving the ROCE for the acquired firms will be a challenge. Sanjaya Satapathy, research analyst at DSP Merrill Lynch, believes to be able to achieve the ROCE target, Peguform needs to grow its sales by 30 per cent and double its Ebitda margins to 10 per cent.

TURNAROUND CHALLENGE

While MSSL has a good record and has been able to turn around Visiocorp, improvement at Peguform could take longer, especially if the offtake of parts slows due to lower demand. Further, Peguform, which was declared insolvent in 2002, has gone through multiple management changes since then. Satapathy of Merrill Lynch says the key challenges for the group are to turn around Peguform and manage debt, which will rise after the acquisition. While MSSL has debt of `1,250 crore, a proportionate share of debt (51 per cent) in the new entity would increase its total debt to `1,652 crore. While its debt to to equity ratio will move to 0.8, analysts are not too worried, as the company is expected to generate an operating cash flow of `790 crore for 2011-12.

 

What is Cost Inflation Index (CII)?

Posted: 07 Aug 2011 09:21 PM PDT

It is a measure of inflation that finds application in tax law, when computing long-term capital gains on sale of assets.  Section 48 of the Income-Tax Act defines the index as what is notified by the Central Government every year, having regard to 75 per cent of average rise in the consumer price index (CPI) for urban non-manual employees for the immediately preceding previous year.

 

How does CII help in capital gains computation? Capital Gain, as you know, arises when the net sale consideration of a capital asset is more than the cost. Since "cost of acquisition" is historical, the concept of indexed cost allows the taxpayer to factor in the impact of inflation on cost. Consequently, a lower amount of capital gains gets to be taxed than if historical cost had been considered in the computations.

 

Formula for computing indexed cost is (Index for the year of sale/ Index in the year of acquisition) x cost.

 

For example, if a property purchased in 1991-92 for Rs 20 lakh were to be sold  in A.Y. 2009 -10 for Rs 80 lakh, indexed cost = (582/199) x 20 = Rs 58.49 lakh. And the long-term capital gains would be Rs 21.51, that is Rs 80 lakh minus Rs 58.49 lakh.

 

Cost Inflation Index:- Cost inflation index (CII)as notified by Central Government is as under:

 

Financial Year

(CII)

Financial Year

(CII)

 

 

 

 

1981-82

100

1996-1997

305

1982-83

109

1997-1998

331

1983-84

116

1998-1999

351

1984-85

125

1999-2000

389

1985-86

133

2000-2001

406

1986-87

140

2001-2002

426

1987-88

150

2002-2003

447

1988-89

161

2003-2004

463

1989-90

172

2004-2005

480

1990-91

182

2005-2006

497

1991-92

199

2006-2007

519

1992-93

223

2007-2008

551

1993-94

244

2008-2009

582

1994-95

259

2009-2010

632

1995-96

281

2010-2011

711

 

Mutual Fund Review: HDFC Cash Management Fund - Call Plan

Posted: 07 Aug 2011 08:33 PM PDT

Objective
To generate optimal returns while maintaining safety and high liquidity.

Option/Plan
Dividend Plan, Growth Plan. The Dividend Plan offers Daily Dividend option (reinvestment facility only); Weekly and Monthly Dividend option (with payout and Reinvestment facility).

Minimum Application Amount
For new/ existing investors :Rs.100000 and any amount thereafter (Under each Option).
 

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Also, know how to buy mutual funds online:

 

1) DSP BlackRock Mutual Funds:

http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html

 

2) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html

 

3) Reliance Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-hdfc-mutual-funds-online.html

 

4) Sundaram Mutual Funds:

http://prajnacapital.blogspot.com/2011/07/buying-sundaram-mutual-funds-online.html

 

5) Birla Sunlife Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-birla-sunlife-mutual-funds.html

 

6) UTI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-uti-mutual-funds-online.html

  

7) SBI Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-sbi-mutual-funds-online.html

 

8) Edelweiss Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-edelweiss-mutual-funds-online.html

 

9) IDFC Mutual Funds:

http://prajnacapital.blogspot.com/2011/06/buying-idfc-mutual-funds-online.html

 

 
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