S&P BSE Sensex*	Re/US $	Gold Rs/10g	Crude ($/barrel)	FD Rates (1-Yr)
18,789.34 | (374.7) -1.96%	61.30 | (0.8) -1.41%	28,065.00 | (205.0) -0.73%	108.15 | (0.5) -0.47%	7.50% - 8.75%

   
The finance ministry and the labour ministry locked horns recently. This time the bone of contention was which one of Employee's Pension Scheme (EPS) and New Pension Scheme (NPS) is better. There have been strong arguments from both sides. While finance ministry questioned the financial viability of EPS, labour ministry highlighted lower returns generated by NPS during May 2009 and May 2013, thus questioning the reward potential of NPS. It is clear, that both ministries want their pension schemes to sustain and be alive. In the current structure, EPS makes the government liable to pay pension to the members of EPFO. On the other hand, NPS is totally market linked and comes with no sovereign guarantee.

PersonalFN is of the view that, the remarks of finance ministry are targeted towards reducing the liability of government. India is burdened with high fiscal deficit and the government wants to shore up revenues and curtail expenditure. However, PersonalFN believes intent of government to replacing EPS with NPS is myopic. True, that financial prudence needs to be followed especially when state of public finances is fragile but overlooking social benefits is little unconvincing. Interestingly a person who has served as a member of parliament for any time period is entitled to a minimum pension of Rs 20,000 p.m. Government coffers don't seem to be burdened with these fixed outgoes.

PersonalFN believes that there are multiple other ways to curtail fiscal deficits. On one hand government talks about food security bill and on the other hand it's shying away from long term responsibility of social security. This suggests that certain moves of the government are politically motivated.

Whether, EPS or NPS both systems have their pros and cons. The best way to secure your golden years is to save adequately and invest wisely while you are working. Plan your own retirement and don't depend much on social security system which itself is unsecured with two ministries taking contrasting stands.

Are PSUs dragging the performance of your mutual fund?

In Securities and Exchange Board of India (SEBI) has been encouraging mutual funds to protect the interest of unit holders (who are otherwise the minority shareholders) in companies they invest in. They are being encouraged to exercise their voting rights effectively as and when needed. However, doing so in case of companies operating as Public Sector Undertakings (PSUs) may be a big challenge for mutual funds. A number of mutual funds invest in PSUs. After all, top 50 listed PSUs form about 15% of the total market capitalisation as per government records as on July 31, 2013. PSUs operate in some crucial sectors such as Oil and Gas and Banking to name a few and thus it is difficult to find a diversified fund not investing in atleast some PSUs. Moreover, there are some dedicated thematic funds investing only in PSUs. Investments made over last couple of years in these companies would have made huge losses.
  Underperformance of PSUs

(Data as on August 05, 2013)
(Source: ACE MF, PersonalFN Research)
Over last 2 years, S&P BSE PSU Index lost about 36% of its value at the time when S&P BSE Sensex registered gains of 11% on absolute basis. A closer look suggests that PSU index has been losing massive ground since the beginning of the year 2013.

To read more about this news and the view of PersonalFN over it, please click here.
 

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What should you do now if you have not filed you income tax returns yet?

There's always a last minute rush to file income tax returns. In the haste collating income details at eleventh hour, you may commit some mistakes in calculation or you may simply forget to make account of some income. In such cases you need not bother much if you have filed your returns before the due date.

Can you rectify your mistakes?
Yes. Under section 139(5) you may rectify mistakes by filing a revised return; provided omissions and mistakes are bona fide in nature and there was no deliberate intent of concealment. Income tax return can be revised any number of time before the expiry of 2 years from the end of Financial Year (FY) for which you are filing the return or the actual assessment whichever happens earlier. For example, if you are filing return for FY 2012-13 revised returns can be filed before March 2015 or before the actual assessment happens. Moreover, no penalty is payable if revised return is filed to correct the genuine mistake. However, in case it is found that there was a deliberate concealment or deliberate inaccurate reporting of income you would be liable to pay, under section 271(1)(c), a penalty of upto 300% of the tax sought to be evaded.

Yet to file the return?
And if you couldn't file you income tax return at all before August 5 (which was an extended deadline) this year, you can still file the return. But mind you, many of advantages which include, revising your return or carry-forwarding losses may not be available to you now. Furthermore, now you will have to pay penalty under section, 234A for missing the deadline which is calculate at the rate of 1% (calculated on self-assessed tax) p.m. from the date due date to the date of filing tax returns.

PersonalFN believes that you should always file your income tax returns in time. Filing returns on time offers you many benefits. But for some reason, you have not filed your returns till now you shouldn't delay it further. You may reduce the impact of penalties charged to you by filing returns a.s.a.p (as soon as possible).

Would falling rupee make bank FDs attractive?

Harder the RBI is trying to stabilise rupee stricter it is getting in its actions. In spite of that the rupee is showing inordinate stubbornness and denying RBI a commanding position. So far, RBI has taken measures to draw out liquidity by making short term borrowing pricy. Moreover, it has prescribed a limit on borrowing by banks under Liquidity Adjustment Facility (LAF) window to meet their short term liquidity requirements. This was expected to discourage speculation in the forex market which was believed to be one of the reasons behind incessant fall in the rupee. It has been almost three weeks since RBI stared intervening aggressively but all actions taken by the central bank have gone in vain thus far. Although tight liquidity is intimidating investors as it threatens to affect growth prospects of the fractured domestic economy, there's something to cheer for.

How investors may still benefit?
Given the tight liquidity situation, investors have a chance to earn higher returns on their fixed deposits with banks.

Many, including the finance minister, had expressed that they believed these measures were short term in nature. However, there was a question mark on how one defines short term. Finally, RBI broke its silence at the first quarter review of monetary policy by stating that the measures would remain in place till rupee becomes stable. Although the monetary policy statement didn't hint at any possible hike in policy rates, it certainly did reiterate that currency stability remains high on its agenda.

To read more about this news and the view of PersonalFN over it, please click here.

 

Don't get surprised if representative of a mutual fund discourages you from investing in gold Exchange Traded Fund (ETFs) and gold fund of funds. Stringent measures taken by the government to curb gold imports are making it difficult for mutual funds (running gold-backed funds) to source gold. According to Association of Mutual Funds in India (AMFI) assets under management of gold ETFs shrank by about Rs 1,000 crore in June.

PersonalFN is of the view that, sudden upsurge in demand for gold ETFs may drive procurement prices of gold higher making gold buying dearer. Having said this, PersonalFN believes that you should continue to invest 5%-10% of your savings in gold.

   

Velocity of Money: It is the rate at which money is exchanged from one transaction to another, and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money.

Quote : "The hardest thing in the world to understand is the income tax."   - Albert Einstein