Skip to main content

Protect Your Investments from Inflation

Invest In Tax Saving Mutual Funds Online

Call 0 94 8300 8300 (India)

 
Inflation-indexed bonds, offering 1.5% above consumer inflation, will work well for those whose income is not subject to tax or who fall in the 10% tax bracket

Earning 1% above inflation is the ultimate dream of many conservative investors, who mostly invest their money in secure bank and company deposits. These investors will soon have an investment option that will help them beat inflation easily.

The Reserve Bank of India had announced last week that Inflation-Indexed National Savings Securities (IINSS-C), linked to Consumer Price Index (CPI), will be launched in the second half of December. IINSS-C is in line with the announcement made in the Union budget this year to introduce instruments that will protect savings from inflation.


Since the interest payout is linked to CPI, IINSS-C helps you stay ahead of inflation as you earn 1.5% above inflation. Interest rate on IINSS-C comprises two parts — fixed rate (1.5%) and inflation rate based on CPI. Both these will be added, compounded in the principal on a half-yearly basis and paid on maturity.


Since the interest income is variable, IINSS-C cannot be used to plan for your goals as there is no certainty of what you will get on maturity. These bonds are unattractive to those in the higher tax bracket as post-tax returns are lower.


IINSS-C will have a tenure of 10 years, a face value of Rs 5,000 (you can buy one bond) and will have an upper limit of Rs 5 lakh on investment by individuals. Assume you make an investment of Rs 1 lakh. If the CPI is 10%, your return will be 11.5% (10% plus 1.5%). The interest will be compounded half yearly. So after six months, you will earn . 5,750 as interest income. If CPI inflation rises to 10.5%, you will get a 12% return in the second half. Or in other words, you would earn an interest income of Rs 6,345. The cnumulative value of your . 1-lakh investment at the end of any year will be Rs 1,12,095, giving you a return of 11.21%. With CPI currently hovering around 10.09%, these bonds could give you better returns than a bank fixed deposit that gives you around 9.0-9.5%.


While bank returns are fixed on the date you invest in till maturity, the returns from IINSS-C could go up or down during the tenure, in line with changes in inflation. However, unlike the bank deposit, the cumulative value of your investment in IINSS-C on maturity is unpredictable.


Though these bonds will help you beat the official rate of inflation, they are not very tax efficient for those in the higher income tax slabs. For example, if you earn 11.21% as shown in the earlier example, your post-tax return would be only around 7.74% if you are in the 30% tax bracket.
However, if you fall in the 10% tax bracket, your post-tax returns will work out to be 10.05%. That is why many investment experts believe that these bonds will be more suitable for those in the lower tax bracket or not liable to pay taxes. Taxfree bonds will be better suited for those in the higher tax slabs. Tax-free bonds available from IIFCL offer you 8.66% for a 10-year tenure.


Compared to bank deposits, IINSS-C scores low on liquidity. If you need money urgently, you can walk into your bank branch and break the fixed deposit immediately. According to the Reserve Bank of India circular, IINSS-C has a tenure of 10 years, with an option for early redemption after one year from the date of issue for senior citizens (above 65 years of age) and three years for all other investors, subject to penalty charges at the rate of 50% of the last coupon payable for early redemption. That is why many experts advise investors to invest in IINSS-C only if they intend to hold on to their investment until maturity.


Bond Relief


The Reserve Bank of India had announced last week that Inflation-Indexed National Savings Securities (IINSS-C), linked to Consumer Price Index (CPI), will be launched in the second half of December Interest rate on IINSS-C comprises two parts — fixed rate (1.5%) and inflation rate based on CPI. Both these will be added, compounded in the principal on a half-yearly basis


and paid on maturity INSS-C will have a tenure of 10 years, a face value of 5,000 (you can buy one bond) and will have an upper limit of 5 lakh on investment by individuals


While bank returns are fixed on the date you invest in till maturity, the returns from IINSS-C could go up or down during the tenure, in line with changes in inflation

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 )

  1. ICICI Prudential Tax Plan Invest Online
  2. HDFC TaxSaver Invest Online
  3. DSP BlackRock Tax Saver Fund Invest Online
  4. Reliance Tax Saver (ELSS) Fund Invest Online
  5. Birla Sun Life Tax Relief '96 Invest Online
  6. IDFC Tax Advantage (ELSS) Fund Invest Online
  7. SBI Magnum Tax Gain Scheme 1993 Invest Online
  8. Sundaram Tax Saver Invest Online
  9. Edelweiss ELSS Invest Online

------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Birla Sun Life Front Line Equity Fund
    2. Large and Midcap Funds Invest Online
      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
    1. Mid and SmallCap Funds Invest Online
      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
    1. Small and MicroCap Funds Invest Online
      1. DSP BlackRock MicroCap Fund
    1. Sector Funds Invest Online
      1. Reliance Banking Fund
      2. Reliance Banking Fund
    1. Tax Saver MutualFunds Invest Online
      1. ICICI Prudential Tax Plan
      2. HDFC Taxsaver
      3. DSP BlackRock Tax Saver Fund
      4. Reliance Tax Saver (ELSS) Fund
    2. Gold Mutual Funds Invest Online
      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...
Read more

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Read more

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...
Read more

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...
Read more

FCCB buyback

WITH dismal share valuations causing bondholders to redeem, and not convert their foreign currency convertible bonds ( FCCBs ), which until early this year were regarded as one of the most preferred options for raising corporate debt, suddenly seem to have become millstones around the necks of issuers. It is the redemption pressure on cash-starved issuers, coupled with the need to preserve liquidity by mitigating further forex outflow, which seems to have prompted the Reserve Bank of India ( RBI ) to issue the circular permitting buyback of FCCBs. As per the circular, issuers can now buyback FCCBs under the automatic route up to any limit out of existing foreign resources or by raising fresh external commercial borrowings (ECBs,) if effected at a minimum discount of 15% on the book value. Further, FCCBs up to $50 million can be bought back with prior RBI approval out of rupee resources representing “internal accruals”, if effected at a minimum discount of 25% on the book value. I...
Read more
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