S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
19,575.96 |289.2 1.50%	53.82 | 0.4 0.76%	26,905.00 | (65.0) -0.24%	99.43 |(1.8) -1.79%	7.50% - 9.00%

 

Very often unaccounted money in the form of cash chases the precious yellow metal and finds refuge. The recent sharp descending move in gold, as many of you may be aware may have encouraged many to binge into such transactions while buying gold. But now with a clarification issued to the changes made to the Finance Bill 2013, the Government intends to bring such cash transactions under the tax net, by enforcing a Tax Collection at Source (TCS) on sale of jewellery as well as bullion in cash, with effect from June 01, 2013.

It is noteworthy that as per the existing provisions, coins or any other articles weighing 10 grams or less are excluded. But now with effect from June 01, 2013, sale of bullion (viz. coins or any other articles) in cash in excess of Rs 2 lakh shall be subject to TCS at the rate of 1.0%. Likewise on sale of jewellery in cash in excess of Rs 5 lakh would be subject to 1.0% TCS. At present the Bill has been moved by the Lok Sabha, and now will go the upper house of the Parliament - the Rajya Sabha for approval before being signed by the President into law.

PersonalFN is of the view that the aforesaid proposal in the Finance Act 2013 has brought to put a vigil on unaccounted money put into gold, with India's insatiable appetite and flair to own the same, for both emotional and financial reasons. The withdrawal of exclusion for gold coins or other articles weighing 10 grams or less would bring more people under the tax net as many have preferred to invest in gold via coins or any other articles. It should be noted that this not a new levy, but a modification to the existing tax provision.

PersonalFN is also of the view that unaccounted money also goes into real estate dealings, and hence the Government should keep a vigil on such transactions and impose a levy which can in turn add-up to the kitty of the exchequer.

 

 

 

Why FIIs are slowing pace while buying into Indian equities?

 

 

After depicting a descending move in the last couple of months i.e. February 2013 and March 2013, the Indian equity markets (i.e. the S&P BSE Sensex) exhibited a good impulse, gaining +3.5% (668.41 points) in April 2013. However much of the ascending move came in the in last 10 trading sessions, after the WPI inflation data mellowed to 5.96%; which raised hopes of rate cut from the Reserve Bank of India (RBI) in its annual monetary policy for the year 2013-14, amid weak industrial activity.
 

S&P BSE Sensex vs. FII flows

Data as on April 30, 2013
(Source: ACE MF, PersonalFN Research)

But a noteworthy point is that despite a smart up-move shown by the Indian equity markets, Foreign Institutional Investors (FIIs) continued to be cautious while buying into Indian equities. In fact in the month gone by, they slowed paced by being net buyers to the tune of Rs 5,414 crore, as against the month of March 2013 where they net bought to the tune of Rs 9,124 crore. It is noteworthy that first two months of the calendar year 2013, FIIs had net bought aggressively, aggregating to the tune of Rs 47,314 crore.

So what led them to slow pace while buying into Indian equities?
Well, the main reasons seem to be:
 

• Political uncertainty (which has put the country to risk on early election);
• Policy logjam and interrupted session of the Parliament
• Scam stories (viz. coal allocation and 2G spectrum allocation)
• Structural bottlenecks in mining and infrastructure space
• Slowdown in economic growth rate; and
• RBI hinting in its 4th quarter mid-review of monetary policy 2012-13 that headroom for further monetary easing remained quite limited and now it putting the onus on the Government for reviving growth rate

Also with the U.S. economy showing signs of economic vigour and other Emerging Market Economies being on investment radar of FIIs for host fundamental reasons; they seemed to have allocated assets in such economies, which in turn led to reduction of India's share of foreign flows.

PersonalFN is of the view that going forward FIIs are going to be wary of the aforementioned domestic macroeconomic and political scenario and would tread cautiously while buying into Indian equities. And now while the RBI has reduced repo rate by 25 basis point (bps) to 7.25% and met the expectation of the market, it is noteworthy that such a market movement has been discounted in the earlier market movement and thus going forward the ascending move seems limited. Also concerns of early elections are overshadowing the reform measures taken by the Government and may act as restrain for further upward path of the markets.

Hence in such a situation where volatility persists, we recommend investor to stagger their investments to mitigate risk, since volatility could persist. While investing in equity mutual funds, we recommend one to opt for the SIP (Systematic Investment Plan) mode of investing, as it will enable you to mitigate the volatility through rupee-cost averaging and power your portfolio with the benefit of compounding. However, while selecting mutual funds for your portfolio, prefer the diversified equity funds which follow strong investment processes and systems, and invest with a long-term horizon of at least 5 years.
 

---------------------- Introducing PersonalFN's Guide to Investing in Gold ---------------------

Many of us buy gold with an emotional touch. And why not, the glitter which it presents and the feeling of content it gives are truly worth it.

PersonalFN has Just Released a Guide to Investment in Gold, which reveals the smart way of investing in gold.

Download Your FREE Copy Here!

Is your bank pushing gold products to you? Beware!

As Indians we have an insatiable appetite and flair to own gold, for both emotional and financial reasons. Many of you may be aware that after a recent fall in price of gold, there's one again been an up-move as many have taken this as an opportunity to flock towards the precious yellow metal for varied reasons. But you got to be careful with whom you dealing with while buying gold and invest in it only the smart way.

Today mis-selling is all over and hence you got to be careful. Recently following complaint of customers being induced by bank employees and other within bank premises to purchase gold coins, gold-related investment products and other wealth management schemes; the Reserve Bank of India (RBI) is looking into sale of gold coins and gold-related investment products of about 30 banks, wherein are they also trying to study their business practices and ascertain whether there indeed exists any mis-selling of such products. To read more about this news and to know PersonalFN's view over it, please click here.

 

 

Can fast-tracking amendments to securities laws bring safety?

 

 

Today as many of you may be aware that Collective Investment Schemes (CIS) are in spotlight for all wrong reasons. Getting lured by tall claims in the past, many investors have indulged in CIS without a prima facie assessment whether they are registered with the Securities and Exchange Board of India (SEBI) [in accordance to SEBI CIS (Regulations) 1999)] or even evaluating whether it fits their risk appetite. This has thus left investors with a feeling of being betrayed and maybe even an economic loss.

But now realising the loopholes in securities laws, which has resulted in scandals; the Government is considering a major overhaul of regulations governing such aforesaid money pooling schemes. This may provide great power with the capital market regulator - SEBI, to check such money pooling frauds. It is expected that SEBI may get the following powers, amongst others. To read what powers SEBI would get and to read PersonalFN's view over this, please click here.

 

 

 

 

• Realising the fact that our country requires funding to scale-up on infrastructure, in the Union Budget 2013-14 the Government earmarked Rs 50,000 crore for tax-free bonds, thereby attempting to encourage long-term investments in the infrastructure sector. Last year too, the Government had sanctioned Rs 53,500 crore for 10 state-run institutions; but they could barely raise to Rs 14,763 through public issue and about 4,000 crore through private placement.
  
  This year too, the scenario is not going to be much different. They would once again find few takers as the finance ministry is planning to keep the coupon rate on these bonds below the prevailing rate on Government securities (G-secs). Well, the rationale from the finance ministry on doing so is that, what is the point of giving a tax incentive, if a higher rate than G-sec is to be offered, where the Government is willing to forgo tax revenue and bear higher cost.
  
  PersonalFN is of the view that, in the current year the permission to issue tax-free bonds comes with a rider that these would be allowed strictly based on the need and capacity of an institution to raise money in the market; therefore companies who were not able to utilise the window last year, would not get a second chance, while some new entrants could be considered. Hence in reality, one may find less number of tax-free bond issues.

   

  Financial Terms. Simplified.
   

  Government Security: A bond (or debt obligation) issued by a government authority, with a promise of repayment upon maturity that is backed by said government. A government security may be issued by the government itself or by one of the government agencies. These securities are considered low-risk, since they are backed by the taxing power of the government.

  (Source: Investopedia)

  Quote : "The desire for gold is the most universal and deeply rooted commercial instinct of the human race."   - Gerald M. Loeb