Prajna Capital - An Investment Guide

     Very often tax payers take loans either for the purpose of buying a house or a flat or a car or for some other personal purposes. They are required to pay equated monthly instalments ( EMI ) of interest and principal. In some cases both the interest and principal are deductible for purposes of income tax and in some cases it is not so deductible. Hence in this article we have discussed the benefits of EMI under the Income Tax Act mainly in relation to home loans. The section in this article pertains to the Income Tax Act, 1961. (a) House should be ready for occupation:     One of the most important aspects to be remembered by a tax payer is that the house or flat must be complete. If the house is not ready or is still under construction, then no deduction either on principal or interest would be allowable and permissible under the Income Tax Act. (b) Bifurcate EMI into Interest and Loan:     The next important aspect to be remembered by a tax payer is to bifurcate EMI into two...

Other proposals include grading of hospitals, expanding network Here's some bad news for health insurance policy holders. Insurance companies may no longer foot the entire bill for your hospitalisation expenses. Insurance companies have proposed that the insured should part-pay the bills during claims. The proposal was discussed at a meeting organised by the Confederation of Indian Industry (CII) here today. The meeting was held in the backdrop of the recent standoff between insurance companies and hospitals over inflated bills. Among others, the proposals also included creation of six to seven categories of hospitals, based on their infrastructure, number of beds, speciality focus, and clinical and diagnostic capabilities. Health insurance companies will settle the claim based on a hospital's grade. In other words, even the treatment cost in a small hospital for a particular illness could be similar to that of a bigger one with advance medical infrastructure and better...

     IT is that time of the year when investors start receiving the most critical communication tool from the company, namely the annual report. An annual report provides a summary of how a company has performed in the year that went by, and how it is likely to perform in the forthcoming year. For companies, it is mandatory to send a hard copy of the annual report to each and every shareholder. While a lot of shareholders merely keep annual reports aside or throw them away with old newspapers, there are important cues which savvy investors pick. In fact, for the general public, the annual report is the only financial document that they get to see. Hence, for existing shareholder, it could be the best source of information to determine the financial health of a company and to learn about any problems or opportunities in the business environment. Here are some important things that you could look for in a balance sheet. Look And Feel Of The Annual Report Balance sheets can be designed...

RELIANCE Life Insurance has announced the launch of unique mobile-based insurance initiative — 'Mobinsure' — a mobile portal offering a range of insurance related services on mobile phones. This service would make it easier for the policyholders to track their policies and premiums, do fund switches, pay insurance premium and resolve policy-related queries instantly using their web-enabled mobile handsets. It would be available both on CDMA and GSM platforms, the insurance company said in a statement.    Customers can log on to their Reliance Life Insurance accounts on their mobile handsets and get important information on policies, applications, funds, profile, advisors and also activate online transactions, including premium payments, future allocations and change of address, free of cost. Customers are required to register first time and key in their policy and personal details which will be validated against customer details submitted at the time of new business for secur...

SINCE you have a three-year time horizon, and are willing to take risks, I suggest you consider investing in equity mutual funds," I told him last week. "But is this the right time to invest?" he queried. "Anytime is a good time to invest," I said, tongue-in-cheek, especially since I believed that these were indeed long term funds. From a three-year perspective, I would be happy to jump in, but would my prospective client be able to ignore the bumps and volatility along the way? You don't have to go all in Investing in equities is not like a game of poker. Equities are an asset class to build long term wealth, though it may be difficult to ignore the noise and clutter from the glut of television channels and publications that implore you to try your "luck" at this game to change your fortunes overnight. Successful investing requires discipline - imagine what would happen if you planned to grow a tree by pouring all the water that was needed f...

Home loan repayment for an under construction property will get tax benefits only after the buyer takes possession Looking to buy a property? It involves long-term financial commitment and you have to be in a position to afford the investment. And if you are not in hurry, a property under construction could be a good option. For one, it is cheaper than readymade ones. Also, builders might allow you to make changes in the house. The price difference can be substantial. The difference between a property-under-construction and a completed project is 10-15 per cent per square feet. Banks have tie-ups with builders and that helps one to get pre-approved loans. But the banks release loan payment according to the stage of construction of the house - in a staggered fashion. How does it work? For instance, the total cost of the property you have booked is Rs 50 lakh. The bank will release around 80-85 per cent of the loan amount, in most cases. The remaining amount (margin) is to be f...

Currently as per Section 80C of the Income-Tax Act, an individual can claim a deduction of Rs 1 lakh for a wide cross section of investments, including equity linked mutual funds. As per the new tax regime, this is proposed to be raised to Rs 3 lakh per annum. Added to this, till now this investment could go only in equity linked mutual funds, however, in the new Direct Tax Code, you can invest this amount in debt-oriented mutual funds also. This flexibility will help financial planners recommend debt products also to investors who do not have an appetite for equity products. Above all, this is a positive move for the mutual fund industry, which could witness higher fund flows.    In terms of capital gains, there is one change. Capital gains will be calculated for the asset held for a period of more than one year from the end of financial year in which asset is acquired. While earlier long-term capital gains would be 366 days, now it could be from 366 days to 730 days, depending on ...

  HIGHER than average returns and lower risk makes this large cap-oriented fund a sound proposition for any equity investor. Launched in August 2002, the fund underperformed its category for the first three years. But ever since Patil took over, the fund has surpassed the average performance every single year starting 2006. Mahesh Patil holds an engineering as well as an MMS degree. Patil must be credited with excellent sector calls. This helped him deliver superior returns in 2006 and 2007. In 2008, Patil cut exposure to construction and engineering, which were among the worst hit. Along with aggressive cash and debt calls, he contained losses to a lower level. Ironically, his lowest equity allocation in the past two years was in January and February 2009 (average 73%), just before the market began to rally. Nevertheless, he moved quickly to beat the category average by a margin of 10 per cent in 2009, despite a large cap bent (71% by December 2009). Though the fund manager is ...

  Short-term, long-term debt funds outperform liquid, liquid plus funds MOST investors have investments in fixed income instruments no matter how much they fancy the potential of high returns in equities. Bank fixed deposits (FDs) are the most popular. But investors stand a better chance of getting higher post-tax returns from debt funds compared with bank FDs. However, debt schemes are not as popular with retail investors as they are with institutional and corporate investors. A retail investor in our country typically prefers investing in equity or hybrid funds. For fixed returns, they have an impression that debt funds do not provide returns higher than bank FDs or other small savings schemes such as public provident fund. Besides perceived returns, there are other complexities involved in debt funds investment. There are at least eight different types of debt funds one can invest in. Choosing the right scheme, and particularly the high-return ones, is not an easy task. Fo...

All leading banks advise clients not to disclose their credit card number or automated teller machine ( ATM ) password to anyone. There is also one other number that needs protecting, since online transactions have become very common – the Card Verification Value ( CVV ) number. WHAT IS CVV? The CVV number is three-digit, typically imprinted at the end of the signature panel on the reverse of credit (or debit) card. It especially comes handy during online transactions like booking tickets or paying bills, as the transaction is not complete without CVV. It serves as the authorising code for the transaction. All leading banks warn cardholders to be careful when revealing their CVV numbers on various sites. Preferably, transact on sites which mandate validation of card verification code ( CVC2 ) or those that are certified by Verified-byVisa or MasterCard SecureCode. Last year, the Reserve Bank of India ( RBI ) directed all banks to send notifications to customers (either via mail ...

INSURANCE     MEASURE: Insurers cannot front load costs EFFECTIVE DATE: September 1 IMPACT: Policyholders who have to exit early (after the 5th year) will not lose a large chunk of their investment to charges as they did in the past. MEASURE: Three-year lock-in period for all Ulips increased to five years EFFECTIVE DATE: September 1 IMPACT: Insurers cannot sell Ulips as short term plans MEASURE: Minimum cover doubled on all life ulips EFFECTIVE DATE : September 1 IMPACT: Out of every Rs 100 invested in Ulips, a larger component will go towards life insurance. MEASURE: Stipulation of 4.5% guaranteed return on pension and annuity plans EFFECTIVE DATE: September 1 IMPACT: Insurers will direct major part of the investments to safe avenues like government securities, reducing the scope for earning higher return from equityoriented products. MEASURE: All limited premium unit-linked insurance products, other than single premium products, shall have premium paying term of at least 5 years E...

      How does the new base rate matter to you? Any loan you take from a bank will be at an interest rate linked to the base rate. The rate will be fixed by adding a certain borrower-specific charge to the bank's base rate. The base rate will also be the reference benchmark rate for floating interest rate loans that you take from a bank. Individual borrowers who have home loans on floating rates, the base rate will matter a lot. RBI has mandated that banks do not lend below their respective base rates after July 1. How will it be calculated? Individual banks will calculate their base rates by factoring in (1) The interest rate on retail deposits (for amounts below Rs 15 lakh) with one-year maturity, (2) The negative impact of RBI's prescription of cash reserve ratio or the proportion of cash that a bank needs to keep with RBI and statutory liquidity ratio or the minimum reserve that a bank needs to keep in cash, (3) Unallocatable overhead cost for banks, and (4) Ave...

  Though its start was not at all impressive, AIG India Equity is beginning to get noticed and now shows potential   Though around for just two years, if one looks at its performance, there is a clear demarcation. In all its six quarters till December 2008, the fund underperformed its category average every time, barring one quarter where it equalled it. It began to put its best foot forward only from 2009. In all the five quarters since then, it has outperformed. Further, if one takes a look at the portfolio, another clear cut distinction emerges in June 2009. Here the transformation was the result of Huzaifa Husain replacing earlier fund manager Tushar Pradhan.Husain wasted no time in significantly revamping the portfolio. Fourteen stocks were offloaded which never made an appearance after that (barring HDFC) and 19 new entrants featured. The portfolio reshuffle was based on the premise that domestic recovery would be stronger than global recovery. Hence, stocks dependent on glo...

RECENT enhancement in limits of gratuity payment has generally been cheered by employees although some worry that these limits for nongovernment employees are applicable prospectively and not retrospectively. A lot of queries have been received as to the taxability or otherwise of the gratuity received by different category of employees. In this context, it is important to note that all gratuity received by an employee is not exempt from tax per se, except up to limits specified under the provisions of the Income-Tax Act, 1961. Therefore, it is important to take a note of the relevant tax provisions in this regard. Government Employees The government had earlier enhanced the limits up to which gratuity could be received by the employees covered under the government pension/gratuity scheme, in line with the recommendations of the Sixth Pay Commission. As per the provisions of the I-T Act, 1961, any death-cum-retirement gratuity received under the Pension Rules/Scheme of the Central go...

  What are the key policy rates used by RBI to influence interest rates? The key policy or 'signalling' rates include the bank rate, the repo rate, the reverse repo rate, the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR). RBI increases its key policy rates when there is greater volume of money in the economy. In other words, when too much money is chasing the same or lesser quantity of goods and services. Conversely, when there is a liquidity crunch or recession, RBI would lower its key policy rates to inject more money into the economic system. What is repo rate? Repo rate, or repurchase rate, is the rate at which RBI lends to banks for short periods. This is done by RBI buying government bonds from banks with an agreement to sell them back at a fixed rate. If the central bank wants to make it more expensive for banks to borrow money, it increases the repo rate. Similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo r...

The Employees Provident Fund ( EPF ) is expected to retain the interest rate for its six crore account holders at 8.5% in 2010-11, with a formal announcement likely to be made in August. "I hope that the recommendation of 8.5% by the finance and investment committee of the EPFO will be retained," Central Provident Fund Commissioner S Chatterjee said. "The EPF rate will hopefully be finalised in the next EPF Board meeting, which is expected in August," he said. Asked if there was any shortfall in return from the current payout of 8.5%, Chatterjee said there was no deficit.

  Theft and misuse of credit/debit cards have seen a dramatic rise in recent times. Here is why you must enrol for card protection services    THANKS to the growing popularity of plastic money, maintaining more than a couple of cards has become more the rule than the exception. While the increasing reliance on this mode of payment has indeed given a boost to convenience, it has also meant that the security-related risks users are exposed to have gone up considerably. Misuse of stolen cards, skimming etc continue to be cause of concern for cardholders.    Though the Reserve Bank of India's directive making two-factor authentication mandatory for transactions carried out online has made the process more secure, the threat lives on in the offline world. ENTER CARD PROTECTION SERVICES Some insurance companies and banks offer protection against misuse of credit and debit cards. For instance, Tata AIG General Insurance offers protection that covers identity theft and fraudulent ch...

IRDA's new guidelines for pension plans guarantee returns, but the rate is too low to beat inflation Those buying pension plans from insurance companies may soon find the returns are too low. The minimum guaranteed return — 4.5 per cent (subject to change) —is unlikely to beat inflation. This is not comforting for someone looking at building a retirement corpus through a pension plan. The new-look pension plans, according to the Insurance Development and Regulatory Authority ( IRDA ) guidelines, will be launched from September 1. "This will protect investors' lifetime savings from adverse fluctuations at the time of maturity," Irda had said while issuing the guidelines. The only section that feels this guaranteed return — higher than the 3.5 per cent that savings deposits offer— is too high is the insurance community itself. According to reports, insurers plan to approach the regulator to reduce this rate. "Due to the regulation, companies will have to cha...

    Cap on charges from fifth year   If you have paid five annual premiums, then the insurer will not be allowed to charge you a net reduction in yield of more than four per cent. For every consequent year of premium paid, this will keep coming down further. On completing 10 years, the maximum reduction in yield will be three per cent. While all this capping is good and smoothens out the disparities among Ulips of different insurers or among multiple Ulips, it does not really bring down the burden of high charges. Whether four or three per cent, the charge is still very high compared with mutual funds where Sebi permits a maximum investment management charge of 2.25 per cent. Surrender charges The capping of surrender charges is a welcome move. The maximum surrender charge, also called discontinuance charge, in the first year will be the lower of 20 per cent of the premium amount or net asset value, subject to a maximum of Rs 3,000. Every additional year will reduce the c...

    DESPITE a portfolio of around 57 stocks, a large-cap tilt and exposure to derivatives, debt and cash, it is not a fund for the cautious. True to its calling, it scouts for opportunities and doesn't hesitate in taking concentrated sector and stock bets. This leads to extreme returns. In the bull phase (June 15, 2006 to January 8, 2008), it delivered 91.26 per cent against the 81.29 per cent average of other opportunity funds. Unsurprisingly, it shed higher in the bear hug of 2008. While in the recent run up (March 9, 2009 to June 30, 2010) it delivered 85 per cent against its peers 87 per cent. Its charm lies in its capability to identify sector trends ahead of time. In 2005, it rode the FMCG wave and the move paid off. In the first quarter of 2006, it focused on metals. In 2007, its exposure to construction and metals that resulted in a superb performance. In 2008, it was overweight on the least-hit FMCG sector, which helped it get away with an average fall. More recently...

  WHILE public sector general insurance companies are fighting a battle with hospitals and nursing homes over `inflated rates', their private sector counterparts continue to provide cashless claim settlements, albeit cautiously. Private general insurance companies have a 30 per cent to 35 per cent share in the health insurance market. Private general insurers Financial Chronicle spoke to said it is business as usual on their part. TA Ramalingam, head of underwriting at Bajaj Allianz General Insurance, said the insurer had not stopped cashless facility in any of the network hospitals. "We have exclusive arrangements with our network hospitals as we do not have a TPA. In case of admissible claims from hospitals, which are not in our network, we have a turnaround time of 14 days from the date of submission of all documents," said Ramalingam. Higher claims ratio has hit the private sector insurers too. For many companies, health insurance business is turning unviable...

     EVERY once in a while, in the life of a company, there comes an event which makes investors wonder — should I review my holdings? We take a look at some such events and suggest how you should react as a retail investor to come out a winner. Mergers And Acquisitions Generally, when a company is going to be acquired, its stock price rises. This is because the acquirer typically pays a premium over the market price for acquiring the company. Price of the company being acquired goes up, while that of the acquiring company goes down. The premium paid over the market value sweetens the deal and attracts traders with short-term profit motives. Take the recent case of ICICI Bank ( ICICI ) taking over Bank of Rajasthan ( BoR ). When ICICI announced it is going to acquire BoR, share price of BoR moved up more than 50% over just three sessions. The stock that benefits the least in the short term is the company doing the acquisition. In most cases, the stock price of the acquiring company f...