 |
| July 18, 2014 |
| |
| Weekly Facts | | | Close | Change | %Change | | BSE Sensex* | 25,641.56 | 617.21 | 2.47% | | Re/US$ | 60.18 | 0.02 | 0.03% | | Gold Rs/10g | 28,150.00 | -490 | -1.71% | | Crude ($/barrel) | 105.29 | -3.38 | -3.11% | | FD Rates (1-Yr) | 8.00% - 9.00% | Weekly change as on July 17, 2014
*BSE Sensex as on July 18, 2014 |
Impact 
In the pursuit to earn income in the form of dividends, many investors in mutual funds opt for the dividend option while investing in mutual funds. But would that still be a wise thing to do now, after budget 2014-15, at least when it comes to investing in debt and money market mutual funds?
In the budget speech, finance minister Mr Arun Jaitley has removed an anomaly which prevailed for more than a decade. You see, in the year 2003 the tax liability on income by the way dividends was shifted from shareholder to the company. The shareholders were required to pay tax on 'gross dividends'. But now it is noteworthy that before distributing dividends, companies deduct this tax, commonly known as Dividend Distribution Tax (DDT) on the 'dividends net of taxes'. Similarly, mutual funds pay the said tax on the income distributed in the form of dividends 'net of taxes'. The budget 2014-15 has thus proposed once again that companies and mutual funds to pay DDT on 'gross dividend' and not on 'dividends net of taxes'.
How the new change in DDT rule will impact you
| Particulars | Old System | New System | | Total Dividend | 100.00 | 100.00 | | Tax Paid | 22.10 | -- | | Dividend Amount (Net of Tax) | 77.90 | 100.00 | | DDT @ 28.325% | 22.10 | 28.33 | | Net Income Distributed | 77.90 | 71.67 | | Effective DDT on Total | 22.07% | 28.33% |
What does it infer?
You see, earlier DDT was calculated @ 28.33% on the net of tax amount paid to investors. Thus, effectively due to lower base, the tax paid on dividend would arrive at 22.07%. But now by proposing to calculate DDT on 'gross dividend', it means that the effective rate of DDT will now stand increased to 28.33% (as against in the old system where it stood at 22.07%). Therefore this proposal, which is effective from October 1, 2014, will effectively reduce the dividend earnings in the hands of investors in debt and money market mutual funds. It is noteworthy that for equity oriented mutual fund schemes DDT does not apply.
Hence PersonalFN is of the view that, now before you opt for dividend option while investing in debt mutual fund schemes, you should take cognisance of the aforesaid tax implications to generate optimal returns in the journey of prudent wealth creation.
|
Impact
If you are holding shares in a physical form, it's high time that you get them dematerialised (commonly known as demat) soon by opening a demat account with a depository participant.
You see, the Securities and Exchange Board of India (SEBI) has embarked upon an ambitious plan of doing away with physical share certificates by making dematerialisation compulsory by the end of the current financial year.
And how does SEBI intend going about?
Well, to start with the capital market regulator plans to initially approach large investors such as the Government, companies and institutional investors; who yet hold some share of well-known companies (bought in the distant past) in a physical form. Subsequently, SEBI may even mandate all new shares issued through a rights issue or a follow-on public offering to be in demat form. Thus such a move will also encourage individual investors to convert their physical shares into a demat form.
At present SEBI is in talks with the market participants to finalise the modalities of the transition into demat mechanism. Thus it appears that soon the regulator may amend the Depositories Act, 1996, giving way to its intention, by eliminating physical shareholding in the securities market.
You see, the Depositories Act, 1996 in the present form provides an option to non-promoter investors to hold securities either in a physical form or in a demat form. As far as promoter holders are concerned, in 2011 SEBI had issued circulars announcing 100% dematerialisation mandatory for them.
PersonalFN believes, at present only non-active, yet some serious long-term investors are holding shares (which were bought in distant past) in a demat form. The regulators intent of making it compulsory to hold shares in a demat form, would not only infuse more transparency but even develop the capital markets. Moreover PersonalFN is of view that, this time as against 1996 when the concept of demat account was introduced; there may not be much resistance to change as investors have evolved and today know the merits of holding securities in demat form such as:
- Reduction in risk of bad deliveries
- No risk of preserving the certificates safely
- Savings in time and money (as one is not dealing with much paperwork)
- All benefits of corporate actions like bonus, stock splits, rights, etc. are all managed by the depositories leading to elimination of transit losses
- Better liquidity as against physical holding
- ...and much more!
So, this move of the capital market regulator is going to have a positive impact on several investors who are currently holding securities in a physical form.
|
FREE Money Simplified Guide
Your Definitive Guide To Retirement Planning!
Download your FREE copy to know how you can indeed build the corpus for your golden years.
Click Here to get this most downloaded E-Guide, Now! | |
Impact
The budget 2014-15 was the most awaited event after the 16th Lok Sabha elections. It did have a mild shade of populism to provide some relief to the electorates who voted the Modi-led-NDA Government to power by a thumping majority. But for the Indian mutual fund industry, it sent quite a rude shock.
The budget 2014-15 proposed to increase the rate of tax on Long Term Capital Gains (LTCG) from 10.0% to 20.0% (possibly with indexation benefit) on transfer of units of other than equity oriented funds. Thus the rate of 10% without indexation is completely done away with. Moreover, to be categorised as LTCG, it has proposed to increase the holding period in respect of such funds from 12 months to 36 months.
What does this mean?
Well, it means that the tax arbitrage is eliminated which existed until now, where debt mutual funds were tax efficient in comparison to direct investments in bank fixed deposits. The proposal places bank fixed deposits and debt mutual funds almost parallel, if held for a shorter time frame of less than 36 months.
It also infers that Fixed Maturity Plans (FMPs) will not continue to offer double-indexation benefit (as they did) if the investment tenure is lower than 36 months. Such a proposal is likely to discourage short-term parking of funds by investors in debt mutual funds as they may not be enthused to bear a risk premium for little additional returns.
To read what approach you should follow for prudent and tax efficient investing, please click here.
|
Impact 
After rising in May 2014 to 6.01%, the Wholesale Price Index (WPI) inflation declined to 5.43% in June 2014 However, the data for April was revised upward to 5.55% from 5.20% posted in the quick estimates.
WPI Inflation declines
Data as on June 2014
(Source: Office of the Economic Advisor, PersonalFN Research)
You see, the fall in inflation in June 2014 was mainly on account of:
- Food inflation which fell from to 8.14% in June 2014 from 9.50% in the previous month;
- Fuel & Power inflation which fell to 9.04% in June 2014 from 10.53% in the previous month;
However, a mild increase in manufacturing inflation was reported as the date thereto came in at 3.61% in June 2014, up from 3.55% reported in the previous month.
To read more about this news and PersonalFN's views on it, please click here.
|
- As a citizen of India, you may soon be relieved from the hassle of running from pillar to post in want of signature of a gazetted officer or notary. The Government has decided to do away with the necessity of filing affidavits from gazetted officer or a notary for a big chunk of Government-related work and instead decided to promote self-attestation of documents.
You see, the move is based on the recommendations of 12th report – “Citizen Centric Administration - The Heart of Governance”, of the second Administrative Reforms Commission (ARC); which has suggested simplifying procedures for self-certification (or self-attestation) provisions. And thus taking cue of this, in the administration many have already adopted self-attestation (by applicant or stakeholder) for documents like mark sheets, birth certificate, etc.; which has given quite a relief. Usually in self-attestation, the original documents are required to be produced for verification only at the final stage.
PersonalFN is of the view that, such a move from the Government that would indeed be a boon for many individuals since it's a citizen friendly move which saves on their time and money. People who are doling out fancy sum of money for an affidavit and / or get their documents notarised, will not have to do so now as self-certification comes into effect. However, it should be noted that self-attestation of documents may not be permitted for those works where it is a statutory requirement.
|
Dematerialisation (or Demat): The move from physical certificates to electronic book keeping. Actual stock certificates are slowly being removed and retired from circulation in exchange for electronic recording.
(Source: Investopedia)
|
Quote : "Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this." - Dave Ramsey
|
| |
| © Quantum Information Services Pvt. Ltd. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of PersonalFN is strictly prohibited and shall be deemed to be copyright infringement.
Disclaimer: Quantum Information Services Pvt. Limited (PersonalFN) is not providing any investment advice through this service and, does not constitute or is not intended to constitute an offer to buy or sell, or a solicitation to an offer to buy or sell financial products, units or securities. All content and information is provided on an 'As Is' basis by PersonalFN. Information herein is believed to be reliable but PersonalFN does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. PersonalFN and its subsidiaries / affiliates / sponsors or employees, personnel, directors will not be responsible for any direct / indirect loss or liability incurred by the user as a consequence of him or any other person on his behalf taking any investment decisions based on the contents and information provided herein. This is not a specific advisory service to meet the requirements of a specific client. Use of this information is at the user's own risk. The user must make his own investment decisions based on his specific investment objective and financial position and using such independent advisors as he believes necessary. All intellectual property rights emerging from this newsletter are and shall remain with PersonalFN. This is for your personal use and you shall not resell, copy, or redistribute this newsletter or any part of it, or use it for any commercial purpose. The performance data quoted represents past performance and does not guarantee future results. As a condition to accessing PersonalFN's content and website, you agree to our Terms and Conditions of Use, available here.
Quantum Information Services Pvt. Ltd. 101, Raheja Chambers, 213, Nariman Point, Mumbai - 400021. Tel: +91 22 6136 1200
Website : www.personalfn.com CIN: U65990MH1989PTC054667 |