Prajna Capital - An Investment Guide

Elderly citizens can invest in the Senior Citizens Savings Scheme as it offers triple benefits of safety, liquidity and regular periodic income THE search for safe investment avenues offering regular income begins as one approaches the retirement age. Schemes that offer capital appreciation coupled with security are the most desired. Being guided by such a principle, the Government of India had announced a special scheme known as Senior Citizen Savings Scheme or SCSS in 2004 to cater to such needs of the senior citizens. In a short span it became very popular with people, however, attractive rates on bank fixed deposits last year overshadowed the scheme. Now, with falling deposit rates, the scheme could make it to the limelight again. However, the biggest shortcoming of the scheme is that the interest earned on it is taxable. If the interest income in a year is more than Rs 10,000, then the TDS (tax deducted at source) is cut. However, with the recent amendment an investment up ...

Is it prudent to keep your money in a tax-saving mutual fund scheme beyond the mandatory lock in period of three years? A large number of investment experts think otherwise. They believe that transferring the money from a tax-saving scheme to a diversified scheme after the lock-in period would help you as an investor to maximise your returns as most tax-saving schemes are trailing diversified schemes on returns posted in the three- and five year periods. Tax-saving schemes or equity linked saving schemes ( ELSS ) qualify for tax deduction of up to Rs 1 lakh under section 80C of the Income Tax Act. Though we recommend ELSS because of the prospects of getting better returns among available options under section 80C, we don’t encourage staying invested in it beyond the mandatory period. Financial advisors maintain that ELSS can deliver double digit tax-free returns after the lock in period, whereas most other tax saving options — mostly government-backed investments like PPF, NSC, e...

IT ISthat time of the year when employees have to submit proof of having made tax-savings investments to their employers. With tax season around the corner, here are 10 reasons for you to consider equity-linked savings schemes ( ELSS ). Why invest in ELSS funds? All investments in ELSS are eligible for tax benefit under Section 80C of the Income-Tax Act, subject to a ceiling of up to Rs 1 lakh a year. ELSS funds invest in equities, and equities as an asset class are known to give higher returns over a longer period against, say, debt or fixed income instruments. Does ELSS score over NSC, PPF? An investment in ELSS is locked in for a mere three years against six years in post office schemes such as national savings certificates ( NSC ) and 15 years in public provident fund (PPF) scheme from the date of opening with compulsory contribution every year. However, returns from ELSS are linked to the performance of stock markets, while that of NSC and PPF are currently fixed at 8%. Dividend i...

Now that the financial year is coming to an end, it is time to start tax planning. One of the options for tax planning is the equity-linked saving scheme ( ELSS ). Investments in ELSS are eligible for tax benefit. The maximum amount that can be invested is Rs 1 lakh during a year. ELSS funds invest in equities. An investment in ELSS is locked-in for three years. As against this, investments in the national savings certificate ( NSC ) is locked-in for six years, and in public provident fund ( PPF ) scheme the lock-in period is 15 years. It is to be noted that the returns on ELSS are linked to the performance of the stock markets. As against this, the returns on NSC and PPF are guaranteed. The present rate of interest is fixed at eight percent on NSC and PPF. The dividend income from an ELSS schemes is tax-free. The sale proceeds on sale are exempt from long-term capital gains tax too. As against this, the interest on NSC is taxable. The interest earned on PPF however is tax-...

My brother says that the investment in public provident fund ( PPF ), which gives 8 per cent, is the best. Isn't 8 per cent a low rate of return? An investment's pre-tax yield tells us if its return is high or low. The return on PPF (8 per cent) is tax-free. Also, this has to compared with returns of a taxable income to estimate its worth. For someone paying a tax of 30.9 per cent, the pre-tax yield in PPF is 11.57 per cent. At present, there is no fixed, safe and assured-return option that has 11.57 per cent return and a post-tax return comparable to PPF's 8 per cent. Formula: Pre-tax yield = ROI / (100-TR)*100 Type in: =8/(100-30.9)*100 and hit enter. You will get 11.57%. ROI: rate of interest, TR: tax rate, (depends on tax slab) Also used for: Calculating the yield on an Employees' Provident Fund or any other tax-free instrument.

‘If you always do what you’ve always done, you’ll always get what you’ve always got.’ - Anonymous Most of us vow to do it early, but end up doing it in a hurry. Now is the time to start your tax savings investments. You can also use the ‘ Contrarian Style’ . Asset allocation While using tax saving investments, look at the overall asset allocation, since managing risk is the key to sustaining long term wealth creation. Tax saving avenues may restrict you to the available asset classes. While planning asset allocation, diversify across complementary avenues so that risks are managed better. A contrarian needs to study various asset cycles and accordingly choose the investment avenue where the trend is likely to change. For example, when interest rates are expected to fall, invest in a bank fixed deposit of about 7-10 years instead of just a 5-year deposit. To invest in equity or not? Most of us who have invested in equity linked saving scheme (ELSS) funds last year are likely t...

Like your colleagues who throw a warm farewell for you when you leave after putting in substantial years, your employer too has a small, but significant, way of singing 'he's a jolly good fellow' to reward you for your service to the organisation. He does so by giving you a free lump sum of cash - called gratuity in financial parlance - on your exit. The amount that he gives is based on the number of years of service you have put into the organisation. Read on to know more about this little-known windfall and some ideas about what you can do with the free money that comes your way. When are you entitled? Gratuity in earlier days was rather arbitrary and completely hostage to the whims of the employer. A wealthy, well-established employer would reward his dedicated employees and the not so rich would refuse such generosities. This led to a lot of discord and finally the government stepped in, passing the Payment of Gratuity Act, 1972, making it mandatory for all employers wi...

Mr & Mrs Achar, both in their early thirties, have a long list of want to-do things post-retirement. While Achar, a private banker, wants to travel a lot and write a book, Mrs Achar wants to look after their children and do some social work. The interesting part, however, is that they want to do this after 10 years, when they plan to retire! Yes, you are right, they do want to retire in their early forties and wish to pursue their passions. Wait a minute... did we hear similar voices from you too. Alright, so let's see how this can be achieved with systematic planning that includes having reasonably aggressive investment plan, regular savings and may be a slight change in lifestyle to ensure a better and safe tomorrow. Early retirement is essentially a lifestyle issue and is proportionate to one's income and consumption pattern. To retire early one needs have to do careful planning and calibrated thinking. Before making any retire plan, one should first prepare a balance sh...

As soon as realisation hits that a new year is upon us, there is another one that lurks around the corner. And that is the start of a new financial year. Which means, you have till March 31 to complete your tax planning exercise. So if you have not completed your investments under Section 80C, you have a little more time to get your act together. If one takes a look at the past year, what would seem more appealing would be the fixed return instruments like National Savings Certificate ( NSC ) and Public Provident Fund ( PPF ). After all, at least you are guaranteed a positive return there. The equity markets are in the doldrums and don’t look like they will be reviving anytime soon. But what investors tend to forget is that investing in equity is not a short-term investment. Even though equity has the potential of delivering phenomenally over the short term, the risk of capital erosion is also very high. To truly benefit from equity, one should have the patience to stick around for at ...

1. The salary (basic + DA) should be low. The rest should come by way of such allowances on which the employer pays FBT and you don't pay any tax thereon. 2. Interest paid on housing loan is deductible u/s 24 up to Rs 1.5 lakh (Rs 150,000) on self-occupied property and without any limit on a commercial or rented house. 3. The repayment of housing loan from specified sources is also deductible irrespective of whether the house is self-occupied or given on rent within the overall ceiling of Rs 1 lakh of Sec. 80C. 4. Where the accommodation provided to the employee is taken on lease by the employer, the perk value is the actual amount of lease rental or 20 per cent of the salary, whichever is lower. Understandably, if the house belongs to a family member who is at a low or nil tax zone the family benefits. Yes, the maximum benefit accrues when the rent is over 20 per cent of the salary. 5. A chauffeur driven motor car provided by the employer has no perk value. True, the company would...

It’s that time of the year when your salary is supposed to look fatter — after all, the financial year has ended. And the New Year brings cheer with pay hikes and lump sum performance bonus, if any. Pay off bad and ugly loan It’s better that you pay off your ‘bad and ugly loans’ with it. These could be your high interest-paying credit card bills, personal loans or car loan. Any loan that costs above 14% should be paid off. Never miss the wood for the trees and ensure that any investment is directed towards the ultimate financial goal, experts say. The idea is that you should see your money grow to meet your financial targets. Safe instruments If you want to use the money for medium-term needs, say 3-4 years, consider safe instruments like debt. This could be debt funds or even arbitrage funds. Arbitrage funds generate fixed income by taking advantage of price differentials between the cash and the futures market. Advise would be not to invest this bonus in aggressive instruments as thi...

Some investment avenues for those who don’t want to take the risks associated with stock markets When the stock markets go the downside way, investments in fixed deposits ( FDs ) become attractive again. FDs remained a dormant investment avenue for the past few years, mainly because of the fact that the interest rates were low, and these investments are unsecured. So, the government's saving schemes, especially the post office saving scheme, had an edge over FDs. Fixed deposits attractive again However, some recent changes have again brought FDs into the limelight. The contributing factors include the decision to give tax breaks in terms of coverage under Section 80C of the Income Tax Act. The second major factor has been the gradual increase in the interest rates on FDs. These deposits have been brought on par with small savings schemes. Investments in term deposits for those planning to take a tax deduction will have a lock-in period of five years. The government notification sa...

The market has fallen, leading investors to think of safer havens to invest. But here’s why you may still bet on the equity market. Here we bring some of the strategies. WONDERING whether to stay put in your stocks that may have been hit in the recent market crash or to liquidate and shift investments in other asset classes. Here are 10 reasons why it still makes sense to remain invested. Markets have come down from their recent highs in the past few weeks. While some of us might be thinking of cutting losses and putting money in safer havens, there are more than one reason still favoring the equity markets. Let’s check them out: a) Long-term plan, lest we forget: The basic principle that often gets buried in a bull market situation is that one should make investments with a long-term perspective. Any serious investor should remain invested in stocks, no matter what the current market situation is, for a couple of years but if the idea is to make quick bucks, probably he should sell an...

A professor of mechanical engineering has been a regular investor in traditional investment products for the last 30 years. His investment portfolio includes instruments like LIC, public provident fund ( PPF ), national savings certificates ( NSC ), fixed deposits ( FDs ) and infrastructure bonds. For him, investment in equities was never a priority. He thought they were risky. More recently, he ran into a wealth m a n a g e r who told him that investments in traditional products are important but it shouldn’t occupy a major chunk of his portfolio. Now he is beginning to invest a little in mutual funds and equities. Everyone hates losing money. But by playing too safe, you could also lose money by earning negative real returns (after taxes and inflation). Traditional investments were hugely popular 20 years ago. They were safe, gave decent returns and were easy to invest in. However, they have not borne the onslaught of private investment options very well. Today, most of Sunder’s c...

We are at the end of this financial year. Some tips in case your tax planning isn’t complete The financial year 2007-08 is coming to an end in the next couple of weeks. This is the last chance for investors who have not planned their tax savings this year to invest and save taxes. There are certain investments and expenses that are exempt from income tax under the Income Tax Act. Investors can review their tax planning and see if they missed out on something good. This can lead to a 33 percent savings on the amount invested through the reduction in their tax liability. Here are some ways for an individual to reduce tax: Tax rebate under Section 80C Section 80C of the Indian Income Tax Act allows income tax exemptions to individuals on certain investments and expenditures. The maximum exemption allowed under this section is Rs 1 lakh. Investors can invest Rs 1 lakh in one or more of these instruments to avail tax rebates under Section 80C: Provident fund or public provident fund ( PPF ...

In this section an attempt is made to analyze and highlight the implications of Budget on common man under various heading. Home is where many tax saving options still dwell Buy a home, go for joint ownership if you are two salaried persons, buy a second property, or even sell the existing one...if you plan well, there are various options to save tax on hard-earned money THE Indian economy has been witnessing a boom in the recent past. However, rising property prices and growing interest burden on home loans are worrying buyers. The Budget has not offered any relief, but you can still make ample use of the existing provisions to save substantially on property investments. Here’s how…. BUYING A HOUSE Owning a house is not just a dream but a necessity, and there are several tax benefits as well. However, when buying a house, you would do well to consider the following. (a) It’s always advisable to go in for a housing loan. Interest paid on home loans can be deducted from your taxable in...

10-point checklist for planning your taxes Planning for tax investment from the beginning of the year is a good practice. But, Inot dome well in advance better to start when the end of the fiscal is less than three months away. Now is the time to start planning your taxes. The following is a ten-point checklist. 1. The most important thing to do is start compiling a list of the Tax Deduction at Source( TDS ) you have paid. TDS operates like tax already paid i.e. from your final tax liability you have to pay only such amount that is over and above the tax already deducted. It is important for all taxpayers to collect the TDS certificates after the end of the fiscal year. Though these don’t have to be attached with the tax return anymore, they have to be filed and kept on record and produced before the ITO if called for. 2. If you have availed of housing finance, be sure to collect the certificate of your EMIs and the total interest paid from the housing finance company. 3. If you ha...