Skip to main content

Good time for short-term debt options

Some has some strategies for investors in the light of the budget proposals


   Every year in February it's Budget time, and investors have sleepless nights, anxious about the impact of the Budget on their investments. This year's Budget has spared them the agony of more taxes. The Budget has not tinkered much with the investments aspect before the implementation of the Direct Tax Code (DTC) next year. This continuity helps in developing a holistic approach to investments and planning for the long term. This is especially true while investing in fixed returns instruments such as bonds and fixed deposits where some period of lock-in exists.


   Investors can, with some reasonable certainty, take their investment decisions to invest in a particular instrument after projecting the returns for a few years. This year, the Budget with its minimalist approach, will have a positive impact on all types of investment avenues over the long run.
   

Strategy for fixed income avenues

Long-term tax-free bonds    

Some government undertakings such as the National Highways Authority of India, HUDCO etc will be allowed by this Budget to borrow up to Rs 30,000 crores for the development of infrastructure in the form of tax free bonds.


   You can consider investing in these bonds for tax-free returns. However, you have to wait till each of these organisations come up with their tax-free versions of the bonds

Long-term infrastructure bonds    

This year's Budget has given some additional investment avenues for fixed income investors. You can avail of one-time tax deduction for investments in infrastructure bonds up to Rs 20, 000 over and above the Rs 1 lakh limit in Section 80C. This scheme, which was introduced last year, has been extended by a year.


   However, you should choose the infrastructure bonds very carefully. You should look at bonds with high credit ratings and good post-tax yields. Therefore, you should wait for the interest cycle to peak before investing in long-term bonds. Ideally, it will be till the next mid-quarter review meeting of the monetary policy scheduled on March 17, 2011. Any hike in interest rates will make long-term debt papers more attractive.

Short-term debt options    

Fixed income investors may be better off investing for the short term till the rate hike cycle is complete. There are many options in debt mutual funds for the short to medium terms. Investors with a short-term time horizon of less than three months can invest in liquid funds for the next 15 days or liquid plus funds with a 3-6 months horizon.


   You can even consider fixed maturity plans (FMPs) of three months to one year (strictly hold till maturity) as the short-term rates are attractive and these FMPs can generate attractive yields for investors.


   You can also invest for a period of six months and more in floating rate funds. There is a double indexation benefit only till the implementation of the DTC. So, to take advantage of this, you can invest in 14 to 15 months FMPs in order to gain attractive post-tax returns.

Strategy for equity    

You can consider investing in equity after the Budget either in the form of direct investments or through equity diversified mutual funds. Budget's impact on equity has been minimal. Excise duty is retained at the same levels. But the increase in the MAT (minimum alternate tax) to 18.5 percent (from 18 percent) may impact some power generation, infrastructure and IT companies.


   The impact will be unfavourable, especially for smaller IT companies and BPOs. The reason is that smaller BPOs haven't yet expanded into SEZs. But on the plus side, the Budget reduces tax on revenues from foreign subsidiaries from 30 to 15 percent.


   Overall, the impact on equity investments is negligible. However, you have to keep in mind the current macroeconomic scenario of high inflation and rising crude oil price before investing.


   The equity markets are still in a correction zone due to the unstable macros. Hence, it may be wise to take the mutual fund systematic investment plan (SIP) route to equity investments.

 

Popular posts from this blog

SBI Magnum Tax Gain Scheme 1993 Applcation Form

    https://sites.google.com/site/mutualfundapplications/tax-saving-mutual-funds-elss     Investment Details Basics Min Investment (Rs) 500 Subsequent Investment (Rs) 500 Min Withdrawal (Rs) -- Min Balance -- Pricing Method Forward Purchase Cut-off Time (hrs) 15 Redemption Cut-off Time (hrs) 15 Redemption Time (days) -- Lock-in 1095 days Cheque Writing -- Systematic Investment Plan SIP Yes Initial Investment (Rs) -- Additional Investment (Rs) 500 No of Cheques 12 Note Monthly investment of Rs 1000 for 6 months and quarterly investment of Rs 1500 for 4 quarters.

Impact of Demonetisation

The government's move to demonetise `500 and `1,000 currency notes will immediately impact reserve money and money supply in the system along with the balance sheet of the Reserve Bank of India, the sole authority in the country for accepting currency notes and coins as legal tender. ET explains the interplay of currency, reserve money and money supply. 1. What is currency in circulation? It is the total value of currency (coins and paper currency) that has ever been issued by the central bank minus the amount that has been withdrawn by it. Currency in circulation comprises currency notes and coins with the public and cash in hand with banks. It is a major liability component of a central bank's balance sheet. 2. What is reserve money? It is essentially the central bank's money . It is also called high-powered money , base money and central bank money . As per the definition, reserve money equals currency in circulation plus bankers' deposits

Should you Roll Over 1 year Fixed Maturity Plans?

The period between January and March typically sees an uptick in the launch of fixed maturity plans, or FMPs. Not this year. Instead, fund houses are busy rolling over or extending the tenure of their one- year FMPs launched last year to three years. Investors in one- year FMPs have a choice. Either redeem units or roll over to three years. If you exit now, your gains will be added to your income and taxed in line with your individual slab rate of 10, 20 or 30 per cent. If you stay invested for two more years, you pay 20 per cent tax with indexation benefit. Yields have softened in the past few months on expectations of a rate cut. If the central bank continues its soft monetary stance, yields are likely to fall further. In such a scenario, it makes sense for investors, particularly those in the 30 per cent tax bracket, to roll over their investments and lock in at a higher yield now. In a surprise move, the Reserve Bank of India cut repo rate by 25 basis

Birla Sun Life Tax Plan Online

Invest Birla Sun Life Tax Plan Online   An Open-ended Equity Linked Savings Scheme (ELSS) with the objective to achieve long-term growth of capital along with income tax relief for investment.   After a bad patch from 2008 to 2010, Birla Sun Life Tax Plan has made a big comeback in the last five years, with a particularly good run since 2014. The fund's rankings, which had slipped to two stars in 2011-12, recovered sharply to three-four stars in the last three years. The fund has delivered a particularly large outperformance over its benchmark and peers in the last couple of years. The fund's investment strategy focuses on a diversified and high-quality portfolio, with parameters such as capital ratios and balance-sheet strength used to judge quality. It uses a combination of top-down and bottom-up approaches to take sector/stock positions. The fund avoids highly leveraged plays. Staying more or less fully invested at all times, the fund parks roughly half of its portfoli

Mutual Fund Review: IDFC Premier Equity Fund

  IDFC Premier Equity Fund, which falls under the presumed high risk group of mid- and small-cap schemes, can rely on astute and timely equity picks. These make it less vulnerable to fluctuations compared with others in the category   IDFC Premier Equity Fund is designed to invest in upcoming, but promising businesses available at cheap valuations, and hold on to these businesses until they reap desired returns. The experiment has been successful so far, and IDFC Premier Equity has emerged as one of the top performing mutual fund schemes in the mid- and smallcap category of equity schemes.    While the scheme is an open-ended equity fund, i.e. open for subscriptions throughout the year, it has a unique philosophy to limit fresh inflows. Thus, while an investor can always take the systematic investment plan ( SIP ) route to invest in the scheme throughout the year, inflows through a lumpsum investment have been restricted. Since inception, IDFC Premier Equity has been opened for l
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now