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Showing posts from June, 2009

Income Tax Deduction on house rent paid

This article outlines some instances when the rent paid is allowed as a deduction while arriving at total taxable income An individual is allowed a deduction on the rent he pays for the house occupied by him. The relevant provisions are contained under Section 80GG of the Income Tax Act. In computing the total income of an assessee, he is allowed a deduction on the expenditure incurred towards payment of rent for any furnished or unfurnished accommodation occupied by him. The residence should be rented for his own use only. In order to avail this deduction, the assessee should be self-employed or a salaried employee. The deduction is not restricted to salaried employees only as is the case with house rent allowance (HRA). Further, he should not have received a HRA at any time during the previous year. In case he had received a HRA during any part of the previous year, the deduction under Section 80GG is not available to him. The assessee should file a declaration in Form 10BA fur

A-Z of Cutting Costs

A ir travel... don’t bother to fasten those seat belts. Flying has become too much of a luxury even for the well-heeled. For the rest, it’s good old Laloo rail. Before complaining about those stinking toilets, remind yourself you’re saving on astronomical airfares. Corporate honchos aren’t on this track just yet but they’ve been forced to downgrade from the luxuries of business class to humble economy. Just last month, a leading Indian bank asked its entire investment banking division to stop travelling business class. Babus, too, have to look for the cheapest flight deals after the Centre’s warning that leave travel allowance (LTA) isn’t a ticket to splurge. B ollywood’s shouting ‘cut, cut, cut.’ The stars have cut fees and producers their budgets. Actor Sanjay Dutt, who was charging Rs 15 crore, is back to a more affordable Rs 4-5 crore. Sanjay Dutt Productions CEO Dharam Oberoi explained that the actor thought it would be “unfair to hike his prices at a time when the industry i

Credit Cards - Reward Points

IN AN economic slowdown, when the salaries are either on a freeze or going south - every penny counts. This is, in fact, a good time to review the loyalty programmes that retail chains, credit card companies and banks have on offer. If used wisely, these programmes can make purchases weigh lighter on your wallet and can even bring you a gift or two occasionally. But to use loyalty programmes to the best of your advantage, you need to plan a bit. To begin, you must compare the value of the rewards against your spend. The value of points can be calculated by checking worth of the reward against spends made to earn that reward. Therefore, you should chose a programme offering higher reward earning potential. You must also compare the minimum number of points required for rewards. A programme that offers one point per Rs 100 spend and rewards start at 2,000 points, for example, is a better deal than one that offers two points per Rs 100 spent and rewards start at 20,000 points. Bu

Different types of stock trade - Long-term trades, Positional trades, Intra-day trades

You should invest in stocks through positional, intra-day or long-term trades for both capital preservation and high returns Every trade is an interesting game where each player has his own rules and still everyone plays together. But every player, before entering the trade, has to decide his strategy and game plan for that trade. Before going for a trade, ask this very basic question - what type of trade is this? At most, trades are classified as long-term, positional and intra-day. 1) Long-term trades These trades are called investments. The primary goal of an investment is to preserve capital . The investment should be made based purely on the fundamental factors of the 'sector and the company's business' and a premature exit should be made only if there is a change in the fundamental factors before the price target is achieved. A fundamental investment call should not be associated with 'stop-loss levels'. The daily price fluctuations should not raise your

Portfolio: Asset allocation vital in volatile markets

It is time to evaluate your asset allocation and balance your portfolio again The five-year bull run which we saw prior to 2008 had made concepts like debt, asset allocation, and financial planning quite unfashionable. The only investment destination one could think of was equity, thanks to the soaring stocks markets. Times have changed and so has the thinking. Investors are now giving more relevance to asset allocation and planning of investments keeping in mind the long-term financial goals. A strategy which always works well in the long term is asset allocation. Asset allocation essentially means diversifying your money among different asset classes such as equity, debt and cash. This would depend on an individual's risk tolerance level and return expectations. The strategy also works well because different asset classes have a tendency to behave differently. While stocks can offer potential for growth, fixed income instruments can offer stability and income. This augurs w

Banking operations now come at a price - where to save on charges

AT A time when financial awareness remains a challenge, more investors find themselves saddled with hidden costs and there seems to be a penalty for any wrong step you take at a bank. What’s worse, most of the charges come without prior notice. The charges range from non-maintenance of quarterly average bank deposit, cash payment penalty on credit cards to cheque book usage, among others. From April 2007 to March 2008, such complaints increased almost threefold, to a staggering 490 cases, according to the Reserve Bank of India (RBI). QUARTERLY BALANCE MAINTENANCE You just can’t afford to be indiscipline while banking today. It carries a financial burden. There’s a big penalty to be paid if you fail to maintain the average quarterly balance. Not only you are liable to pay Rs 500-1,500 as fine, but also chargeable for speaking to a customer care executive. India’s two largest private banks, ICICI Bank & HDFC Bank, ask you to shell out Rs 50 each time you make a call to the custome

Personal Finance: Avoid “DEBT TRAP” with sound financial planning

PRUDENT saving and smart investing may be important for building your portfolio and creating a huge-nest egg, but assuming them to be the only keys to accumulating wealth is akin to financial hara-kiri. For, in the absence of a good debt strategy, the financial planning for your secured future can not only get topsy-turvy but awfully wobbly as well. Debt management, in fact, assumes more importance in the light of the fact that today debt has become a way of our lives, with consumer finance schemes and credit cards becoming big drivers of this devil. Rising disposable incomes, soaring aspirations and convenience in availing credit have increased the amount of debt that an average individual is carrying. In the US, for instance, the household debt-to-income ratio is said to have reached an all-time high, topping 19%, with Americans collectively spending more than what they have earned for the past two years in a row. Likewise, the latest Grant Thornton research shows that personal

Asset Allocation – A Contrarian Approach

Background There are mainly two approaches to asset allocation — The Bandwagon Approach and The Contrarian Approach. In the bandwagon approach - one chases the best performing assets and broadly follows the crowd. In the contrarian approach one focuses more on core value and enters assets that may be out of favour. The contrarian approach to asset allocation, if followed judiciously, can be rewarding. It combines a full range of fundamental and technical analysis, evaluating assets continuously — in the search for assets that are likely to reverse its past trend . It is not about just blindly doing the opposite of what the market is doing. It is about identifying assets that offer true value . Rationale One of the key reasons for using a contrarian approach to asset allocation is the cyclicality of asset classes. There are also some asset classes that are complementary to the others. For instance, when interest rates go up, it hurts the bottom line of companies and hence equitie

AMFI - Certification

This post will help you in understanding what AMFI is about, who should go for this certification, training material and preparation guidelines. AMFI is an apex body of all Asset Management Companies (AMC), which has been registered with SEBI. Till date all the AMCs are that have launched mutual fund schemes are its members. It functions under the supervision and guidelines of its Board of Directors. Association of Mutual Funds India has brought down the Indian Mutual Fund Industry to a professional and healthy market with ethical lines enhancing and maintaining standards. It follows the principle of both protecting and promoting the interests of mutual funds as well as their unit holders. About Certification THE Securities and Exchange Board of India ( SEBI ) has made AMFI certification mandatory for all mutual fund agents. The Association of Mutual Funds in India ( AMFI ) runs a certification programme for agents and distributors of mutual funds. Following the SEBI notification, agen

6 Ways to Make Money Blogging

1) Cost-Per-Click (CPC) Advertising Programs CPC advertising programs are the best money making programs for most of the bloggers. They are suitable to all kind of blogs with family-friendly content regardless of their traffic level and age. CPC programs work well on blog because they display contextual ads that are highly relevant to blogs content and bloggers will earn anywhere between 10 cents to 50 cents for each contextual ads click by their visitors. With proper CPC ads optimization and consistent amount of traffic, a blogger can earn a steady amount of money displaying CPC ads on his/her blog. Google AdSense is no doubt, the undisputed king of CPC advertising programs and Yahoo Publisher Network is the closest alternative of AdSense. 2) Cost-Per-Action (CPA) Advertising Programs CPA programs is quite similar to CPC programs except CPA programs don't pay bloggers for each click on the CPA ads hosted by bloggers. The blogger only makes money when the visitor takes an action

Investment Planning: 4 golden rules of equity investing

IF you want to invest in equities, there are only four things you need to remember. 1. Choose the right company Look for superior and profitable growth. The company should earn at least 20% return on its shareholders’ capital. Ideally a long-term investment perspective (more than five years) allows you to participate in the company’s growth. At the short end (3-6 months), share performance is driven more by market sentiment and less by company fundamentals. In the long run, the relevance of the right price diminishes. 2. Be disciplined Stock investing is a long, learning experience. You will make mistakes, but also learn from them. Here is what you can do to ensure a smooth ride. --Diversify your investments. Do not put more than 10% of your corpus in one stock, even if it’s a gem. On the other hand, don’t have too many – they become difficult to monitor. For a passive long long-term investor, 15-20 is a healthy number. Use this asset allocation tool to find out if you need to invest b

Gold prices on the rise

The yellow metal is a good avenue now for short-term investors Every time equity and other markets turn bearish, investors turn to the yellow metal to park funds. It has been no different this time as gold has turned the new safe haven for many. As would happen in every boom market, investors chase an instrument even if it is on the rise on a continuous basis. In fact, it has happened with various other instruments like equity, property, crude oil, and it seems to be the turn of gold which has been scaling a new peak at regular intervals. Expectedly, new highs are being projected for the yellow metal. Needless to say, investors need to be slightly cautious with their investment strategies as it is easy to get carried away by the current environment. While gold is definitely an option for the next 12-24 months, the instrument too carries its baggage of risks at the current levels. More importantly, rather than demand, other factors such as growing comfort of investors and increasi

Free-Float Market Capitalisation

THE impending realignment of NSE indices on the basis of free-float market capitalisation has put index funds and exchange traded funds in a spot of bother. According to mutual fund analysts, the exchange-proposed changes in stock weightages will result in widening of tracking error in index funds. Index funds are passively-managed funds wherein the fund manager attempts to mirror the performance of a benchmark index, by investing the corpus in the index components in proportion to their weightage in the index. Tracking error is the difference between returns from the index fund to that of the index. Lower the tracking error, closer are the returns of the fund to that of the target index. Funds with tracking error lower than 1% are good performers, according to mutual fund analysts. The NSE-proposed shift in stock weightages could deviate fund returns (from index returns) in the range of 6-10%, industry sources said. There could be some tracking error as weightage realignment

Fed rates and Indian domestic economy

The relation between the Fed’s interest rates and the markets here The US Federal Reserve has decided to leave the interest rates unchanged. However, it has expressed concerns on the escalating crisis. The unanimous decision left the benchmark overnight rates at two percent. The Fed has said, 'strains in the financial markets have increased significantly and labour markets have weakened further' . The central bank said it also remained concerned about the inflation pressures. The Fed said the downside risks to growth and upside risks to inflation are of significant concern to the committee. The move is expected to enable banks in the US to borrow money for the short term from the Fed as well as lend to each other at the same rate as before. In the past few months, the Federal Reserve had been cutting US short-term interest rates amidst concerns that the economic growth will slow down in the coming months. The effort was to stimulate economic activity and keep the country

Factors investors need to track that have a bearing on stock market movements in the near term

The stock markets had been in a bearish phase since the last few quarters. However, the previous quarter's stock market indices registered a positive closing (up 1.5 percent). This is due to the sharp rally seen last month in the markets. Some experts are of the opinion that the markets have bottomed out. According to them the current rally has some steam left to take the markets upwards from the current levels. On the other hand, there are analysts who argue the current rally is just based on some initial data of economic recovery in the global markets and investors should watch further data points and market trends cautiously before assuming a bottom out in the markets. There are some important factors investors should track closely in the next few weeks. 1) Relevant global issues: Economic growth in developed economies The overall economic growth numbers of developed countries will be an important issue. Many large economies confirmed negative economic growth over the last c

ESOP repricing is norm as stocks tumble

FALLING stock prices have left many employees in a sticky situation, mainly vis-a-vis their employee stock option plan (ESOP). The market price for the options, in several cases, is lower than the conversion price. Since this may have a bearing on employee morale, some firms have been considering the prospect of repricing their employee stock options. Market regulator Sebi allows the repricing of options if the exercise price becomes less than the market price. Recently, companies such as Jain Irrigation, India Infoline, Dish TV and Geojit Securities have repriced their Esops. Jain Irrigation had issued Esops at prices between Rs 447 and Rs 560 in 2005. However, with the current market price of Rs 340, it will reprice its stock options at the ruling market price in addition to a discount of Rs 52.20. India Infoline, for example, has cleared a proposal to reprice the Esops issued in 2007 at Rs 88 to Rs 45.3, early this year. Dish TV, cleared a proposal to reprice Esops at Rs 36.10

Corporate Fixed Deposits

Fixed deposits (FDs) of companies that earn a fixed rate of return over a period of time are called Company Fixed Deposits. Financial institutions and Non-Banking Finance Companies (NBFCs) also accept such deposits. Tenure: The tenure can vary from a minimum period of 15 days to five years and above, but short tenured FDs continue to be the best bet. Even if a 3-year-long FD looks lucrative, it’s advisable to pick a short-tenured one. In a falling interest rate regime (like the current one), it is advisable to invest in longer tenure FDs with higher interest rate. Security: These deposits are unsecured, i.e., if the company defaults, the investor cannot sell the documents to recover his capital, thus making them a risky investment option. Therefore, always pay heed to the rating before putting money into any such FD. Category of investor: Senior citizens, shareholders and employees are generally entitled to a higher rate of return (say, 0.5%) than other general category retail inves

Debt Instrument: Safer option in turbulent times equity for capital preservation

The macroeconomic factors world-wide have been quite shaky over the last couple of quarters. As a result, the stock markets have been quite volatile with a negative bias all over the world. In line with market conditions, the performance of equity based instruments remained quite subdued. As uncertainty prevails in stock markets, investors are not keen on putting their money in equity-based instruments. The meltdown in the equity markets started with the slowdown in some countries. This coupled with several other negative developments like a sharp rise and fall in commodity prices (crude oil, metals, food items etc), fall in the global inflation rate and meltdown of some of the large financial houses kept triggering negative sentiments in the markets. Analysts believe the negative sentiments will continue in the stock markets for a few more quarters, and therefore, the stock markets will remain volatile in the medium term. Therefore, it will be risky to invest in equity-based ins

Buy stocks in small quantities and have a profit/loss trigger to exit

The markets rallied over the last few days and there was a bounce back. The market sentiments improved due to a drop in the rate of inflation, rate cut by the Reserve Bank of India (RBI), fuel prices cut, financial stimulus package announced by the government and some positive news from global markets. Currently, a rally in many beaten down sectors like banks, real estate and some select mid-cap stocks is on. Most of the stocks in these sectors have bounced back 20 to 30 percent from their yearly lows. However, analysts believe this rally is just a technical pull-back rally in a bear market. There are no clear and decisive signals that economic and business conditions are improving. Current, the rally is based on cuts and packages announced by the government and the RBI, and expectations that more measures will be announced. Analysts believe the relief measures announced by the government are too small to handle the slowdown and investors should not expect something very dramatic

Bear markets may kill, but bulls always return with vengeance

Average Gain Between Any Two Downturns Has Been 186% IF you have lost a fortune in shares by now, the best way to make it up perhaps could be by buying some more. Since the Great Depression of 1929, the world has undergone 12 major bear market phases. The average bear market has lasted about 22 months, and the market has fallen by an average of 51%. However, the average gain during the bull market between any two downturns has been an eye-popping 186%. The index here in question is the S&P 500. Bull markets — after every recessionary phase — have always been good for investors. All major bull rallies since end-1930 have resulted in markets gaining between 50-500%. Historic numbers show that the magnitude (size or breadth) of a bull market is much heavier than that of a bear market. The million dollar question is: Are we at the threshold of another bull market rally? Markets could go up intermittently, but convincing rallies will take time to happen. The current bear phase is

Diversify to mitigate the Risk

Since the second half of 2003, we have seen the longest bull run in the domestic equity markets. Investors created significant wealth over these years and in the process we all forgot the basic principle of investing - diversification. Although we all believe that investments in equity is the best tool to counter inflation, and we also believe the growth will take place over the long term, short-term jolts can be severe and can take away a significant part of the gains. The last six months have forced us to rethink the mistake that many of us made, namely, putting all eggs in one basket. Alternative investing is an effective diversification tool that has been much talked about, but seldom practiced, especially in a buyout market. It's the golden rule of investing, and is a critical part of a thorough financial plan to appropriately allocate assets that suit one's personal objectives, risk tolerance and time horizon. For most, a mix of traditional investments such as stocks a

Tax Planning - Capitalise on Losses

It makes perfect sense to offset short-term capital losses against short-term or long-term gains not just for this financial year, but for up to eight consecutive years REMEMBER the catch phrase of Unilever’s globally-acclaimed TV commercial for washing powder brand, Surf Excel — daag achche hain (stains are good). It conveyed that if an experience is a learning one, then stains can be indeed good. Investing too has its share of good and bad experiences. But, what differentiates an intelligent investor from the other is the ability to gain from losses. Yes, you read it right! This week, we decided to give you a few reasons to book your capital losses to ensure better returns — not only this financial year but also for future. According to provisions, you are allowed to offset short-term capital losses against short-term or long-term capital gains not just for this financial year, but for up to eight consecutive years. This means that if you book short-term capital losses before M

DEBT SECURITIES – Safe in volatile stock market

In these uncertain and volatile market conditions, investors are flocking to invest in debt securities to ensure not only stable and certain returns but more importantly capital protection THE GLOBAL MELTDOWN Across the globe, financial and economic markets have taken a severe beating and there are expectations of recession in developed countries. In this backdrop, the Indian markets have also been affected but not as badly as the others. BETTER SAFE THAN SORRY Investors have seen their wealth, especially in shares, erode faster than they would have imagined or liked. Thus, investors are now increasingly flocking to invest in debt securities. So what are their options and the pros and cons of each investment avenue. Let’s take a look at some of the attractive ones: Government Securities: The bond yield on short term (1-year) government securities ( g-secs ) is currently approximately 8% to 9% p.a. Due to the inverse relationship between bond prices (carrying fixed interest rates) and

Fiscal & revenue deficit

What is fiscal deficit? The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included. Generally fiscal deficit takes place due to either revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds. What is the difference between fiscal deficit and primary deficit? Primary deficit is one of the parts of fiscal deficit. While fiscal deficit is the difference between total revenue and expenditure , primary deficit can be arrived by deducting interest payment from fiscal deficit. Interest payment is the payment that
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