 |
| April 07, 2017 |
|
|
|
|
Impact 
Should you stop investing in PPF?
It's true, the interest on PPF has been lowered to 7.9%.
It seems unfair, doesn't it?
It seems unfair, doesn't it?
While depositors are earning lower interest on almost all deposits held with banks and under various Government schemes, the banks will earn higher interest for doing nothing. On the contrary, these banks don't pass on the benefits to borrowers and depositors. On the contrary, they will cry foul due to their stressed balance sheets; for which depositors are not responsible for sure.
At the first bi-monthly monetary policy FY 2017-18, the RBI hiked the reverse repo rate from 5.75% to 6.00%. While it left repo rates unchanged. In other words, it offered banks an opportunity to borrow cheap money from the market and park it at 6% with the RBI. Here's how it works, the RBI pays banks an interest at the reverse repo rate for their surpluses parked with it.
Now you'd probably ask, what does this have to do with your PPF investments?
Well, do you know why the Government started reshuffling the interest on your PPF investments so often? Because banks always complained that,Small Savings Schemes (SSS) such as PPF, make bank deposits unattractive as they offer higher interest rates.
The banks were reluctant to lend to borrowers, citing the problems of asset quality. Over the last 2 years, the RBI has lowered the policy rates by 175 bps, but most of the banks have passed only about 85 to 95 bps to their borrowers. But, the Government has been swaying to the tune of banks and has been lowering the interest rates on SSS at regular intervals.
Is this a real transmission?
Rather, in absence of any formidable social security scheme, the interest on PPF shouldn't be lowered especially at a time when banks have excess cash to an extent that, RBI had to hike the reverse repo rate. The credit growth has touched its lowest level, in the last decade, during the fortnight that ended March 03, 2017. This is even more painful. It means, while there are many individual borrowers are being denied loans every day for the reason of lack of creditworthiness, the Government and banks are trying to protect their pockets.
On one hand, farm loan waivers are spoiling the credit discipline and setting the wrong precedents, and hence, lowering interest rates on PPF is reasoned as policy discipline.
Now the question is, has PPF become a redundant investment?
The answer is, "No".
Not yet, it hasn't. It pays you compounded annual interest and helps you avail the tax benefits under section 80C . Moreover, you don't have to any tax on the interest and maturity proceeds are tax free too.
Nonetheless, you shouldn't entirely depend on PPF for your retirement planning and for tax saving purpose as well. You should look at other tax savings avenues such as Equity Linked Savings Schemes (ELSS) as well which help you not only save taxes but also generate wealth.
If you haven't started working on your retirement plan, you should embark on it, before it gets too late.
A Certified Financial Guardian may help you plan for all your financial goals.
|
Impact
If you claim House Rent Allowance (HRA), beware!
Exploiting technical loopholes is an old trick of evading income tax. For instance, people living in the houses owned by their parents and relatives produce fake rent receipts as the acknowledgement of a traction. Technically speaking, a person can let out his/her property to his/her children or relatives and earn a rental income. Similarly, one can claim to be living in a rented property, if the owner declares an income earned through rents in his/her income tax returns.
As the salaried taxpayers have a little room for under-reporting their income, there is a prevalent and blatant misuse of HRA provisions. By law, unless the actual rent is paid, one can't claim exemptions u/s 10(13A), on HRA paid by the employer.
So far, salaried taxpayers were escaping the tax liability upto 60% of their income by generating false rent receipts. Tax authorities have started tightening the noose now.
Invoking the recent rulings of Income Tax Appellate Tribunal (ITAT), the assessing officers will start seeking justification if they find any transactions suspicious in nature.
They can ask for documents such as:
- Leave and License agreement
- Letter to the housing cooperative society communicating about the tenancy
- And utility bills, among others.
While speaking to the media on the condition of anonymity, an assessment officer said that, "Technology and stricter reporting system may make it easier for the (income tax) department. For instance, there was a time when many never bothered to pay tax on interest earned from bank fixed deposits. Today, it's almost impossible. In case of HRA exemption, the assessing officer may cross-check whether the address mentioned in the ITR form is the same as the property on which rent is paid."
It's a welcome move that will help the Government root out the evil of tax evasion. However, it remains unclear as to why the same Government collects tax from the people in the name of "income from deemed to be let out property" when the property may not have been rented at all? If Government wants people to come clean, it should also abolish unfair provisions of the law.
Ideally, if one can't claim the factious expenses, one shouldn't be made liable to pay tax on deemed incomes.
Is India's finance minister listening in?
|
Impact
Investing is a vital constituent of personal finance. But, many of you would agree that it is personal and requires a high level of sophistication.
You need customised solutions, because each one's financial health , circumstance financial goals, investment objectives, investment horizon, and risk appetite, among other factors, could be different. Prudent portfolio activity is pivoted to each of these factors, and ignoring them can cost your financial wellbeing.
The market is flooded with robo-advisors, and everyday robo-advisors are budding. Thanks to the technological innovation and its application over the years. But what about their track record? Two decades down the line, how many of them would really survive and service you, the investor? Currently, many of them capitalising on the trend are adopting a 'trial and error' approach. They won't desist to see off or jump off the ship, if they don't make money. In such a case, what happens to you, the investor?
To read more about this story and Personal FN's views over it, please click here.
|
Impact
"Buy in a panic, exit (or sell) in a euphoria", is the guru mantra of investing in equities.
But unfortunately, retail investors tend to do just the opposite. They buy during exuberant times, and sell when the market (S&P BSE Sensex or the CNX Nifty) is falling like nine pins. As a result, they often lose their hard-earned money.
Recently, a media report highlighted how retirees insist on investing in small and mid-cap schemes. Lured by the extraordinary returns projected, retirees are asking their advisors to shift their investment from debt and balanced funds to mid and small-cap funds. But, this can turn into a financial disaster for retirees.
So, what's driving retired investors to these high-risk assets?
Firstly, the immensely low interest on variety of fixed income instrument: bank fixed deposit, NSC, KVP, and even PPF. Bond yields are around 6-7% So, retired investors are clearly in search of higher returns.
To read more about this story and Personal FN's views over it, please click here.
|
Impact
It's an appraisal time!
Aren't you eagerly waiting to know the increment you will receive this year?
Well, you earn more or the same, expenses always creep up.
Heads might change, though.
Let's look at what will cost us more in the Financial Year (FY) 2017-18...
Healthcare, Car and Motorcycle insurance premium to go up
The IRDA (Payment of Commission or Remuneration or Reward to Insurance Agents and Insurance Intermediaries) Regulations, 2016, have become applicable from April 01, 2017. As a result of this, non-life insurance companies will have to revise the remuneration programme for intermediaries. Moreover, they will launch reward schemes as well. These cost escalations would be passed on to the insurance buyers. However, the Insurance Regulatory and Development Authority (IRDA) has capped hike in the premium to 5% of the current policy premium. Besides, the insurance companies will have to issue a certificate stating that there is no detrimental change either in the premium or in the policy terms.
To read more about this story and Personal FN's views over it, please click here.
|
|
Small Savings Schemes (SSS) will now fetch you lower returns. The Government has decided to slash 0.1% interest on Public Provident Fund (PPF), Kisan Vikas Patra and Sukanya Samriddhi scheme. They will fetch you 7.9%, 7.6% and 8.4% respectively in the Q1 FY 2017-18.
For the common man, it’s becoming increasingly difficult to earn attractive returns on his investments.
|
Are Your EMIs Making You Lose Sleep? Here's A Way Out…
7 Avenues To Invest As Bank Deposit Rates Fall
3 Reasons Why Volatility Can Be Good For Your Financial Health
|
Reverse Repurchase Agreement (Repo): A reverse repurchase agreement is the purchase of securities with the agreement to sell them at a higher price at a specific future date. For the party selling the security (and agreeing to repurchase it in the future), it is a repurchase agreement (RP) or repo; for the party on the other end of the transaction (buying the security and agreeing to sell in the future), it is a reverse repurchase agreement (RRP) or reverse repo.
(Source: Investopedia)
|
Quote: "It would be wonderful if we could avoid the common setbacks with timely exits." - Peter Lynch
|
|
|
|
© 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 Private Limited Regd. Office: 103, Regent Chambers, 1st Floor, Nariman Point, Mumbai - 400 021 Corp. Office: 101 Raheja Chambers, 213, Free Press Journal Marg, Nariman Point, Mumbai 400021. Email: info@personalfn.com Website: www.personalfn.com Tel.: 022 61361200 Fax.: 022 61361222 CIN: U65990MH1989PTC054667
SEBI-registered Investment Adviser. Registration No. INA000000680, SEBI (Investment Advisers) Regulation, 2013
|