Wednesday, June 29, 2011

Good News for Debt Market Investors

We all know that debt instruments like bonds and other deposits offer a fixed interest rate. But, recently there is a fresh development that is even better news. Read on to find out more about it.

Who is this news for?

This news if for the risk averse investor who selects NSC, PPF and other savings and debt instruments as his first investment choice. As you might already be aware, these instruments NSC, PPF are 100% safe investment havens and offer decent returns at literally 0 risk. Hence they are a preferred choice for investors.

What caused this news?

Till now, the returns on these investments have been the same for ages. When I started earning many years ago, the rate of returns on these instruments were hovering around the 8% mark and in spite of the many years that have gone by, the rates are still the same. They are pretty much considered fixed return instruments and their rate of returns do not change and most importantly investors do not have much choice when it comes to choosing these investments. But, this is all set to change.

What is this Good News?

The Rate of Returns on these instruments are no longer fixed. The rate of returns on these debt instruments will be pegged against a bench mark and the rates will be revised every year depending on what the benchmark is.
For Ex: the rate of returns on a 1 year post office deposit will be pegged against the 364 day Treasury Bill offered by the Govt. of India. The details are:

Saving Instrument Current Rate of Returns Proposed Rate of Returns Benchmark Rate
1 Yr Time Deposit 6.25% 6.8% 364 Day T-Bill
5 Yr Time Deposit 7.5% 8% 5 Year Govt Securities
5 Yr Recurring Deposit 7.5% 8% 5 Year Govt Securities
5 Yr Senior Citizen Savings Scheme 9% 8.7% 5 Year Govt Securities
5 Yr NSC 8% 8% 5 Year Govt Securities
10 Yr NSC N/A 8.4% 10 Year Govt Securities
PPF 8% 8.2% 10 Year Govt Securities

Is there any Bad News?

Well Yes, the only bad news I can think of is the fact that, the loans offered against such instruments will get costly because the rates offered by them are going up. Apart from this I cant think of any other bad news. For Ex: You can take loans against your PPF deposits. The new proposal states that, the rate of interest on the loans on PPF will be pegged at 2% greater than the rate that is offered on PPF Deposits.

All else considered, this is indeed a good news for all investors who want safety and stability on their investments.

Happy Investing!!!

Sunday, June 19, 2011

Coal India and Sun Pharma replace Reliance Communication and Reliance Infrastructure in BSE Sensex

This was something that market experts have been expecting for quite a while. Yes, two of the large Reliance group of companies are no longer going to be a part of the BSE Sensex. Read on to find out more.

Who did this?

The BSE Index Committee met a few days ago and were discussing about the various companies that are part of the BSE Sensex (The core 30 companies that form the index number) They meet on a regular basis to determine if the 30 companies that form the Index deserve their place.

Why did they do it?

For more than a year, two of Anil Ambani’s conglomerates, Reliance Infrastructure and Reliance Communications have been underperforming the stock markets. Also, the trading volumes have been quite low for over an year and hence the BSE Index Committee had to take the decision and replace these 2 companies with newer better performing organizations.

Who Replaces Reliance Communications & Reliance Infrastructure?

This was easy for the Index Committee because Coal India and Sun Pharma have been performing very well over the past one year. They have outperformed the broader markets and their trading volumes have been significantly high too. So, they are going to replace Reliance Communications & Reliance Infrastructure.

What is the End Result?

Two of india’s largest companies will no longer be a part of BSE Sensex 30 companies starting August 8th 2011. Another interesting fact is that, none of Anil Ambani’s companies are now part of the BSE 30 index.

What Next?

Though this may come as bad news for Reliance Infra and Reliance Communication, its not the end of the road for them. They are both fundamentally good companies run by an efficient management. So, in all probabilities they will come back to their profit making self and take back their place in the BSE Sensex

Tuesday, June 7, 2011

Good News for Salaried Employees of India

Yes, you read the title right. There is indeed some good news for Salaried Employees of India. The government has recently released a notice that is good news for the salaried class of India. Read on to learn more!!!

Before We Begin:

I have written many articles on Indian Income Tax. You can read them to familiarize yourself with the Indian Tax Laws by reading them. To read them “click here”

What is the Good News?

Well, the good news is the fact that

“No Income Tax Returns is required for Salaried Individuals whose annual taxable income is upto 5 lakhs”

How is this Good?

Below are some reasons why this is good:

1. People who have annual income of upto Rs. 5 lakhs need not file any tax returns
2. Companies don’t have to deduct TDS (Tax Deducted at Source) for their employees whose annual incomes are less than 5 lakhs
3. Employees will get their full salary without any tax deductions (If their annual income is less than 5 lakhs)
4. The government does not have to process tax returns for people whose salaries are less than 5 lakhs and they can concentrate on the higher income group

How many people will be affected/benefited by this?

Approximately 85 lakh salaried individuals in India are expected to gain benefits because of this ruling. Note that, this number is just an approximation and the actual number might be higher or lower than this 85 lakhs.

From when is this effective?

This ruling is effective from financial year 2011-2012. i.e., for this financial year starting April 2011 and ending March 2012, people whose salaries are less than 5 lakhs need not file their tax returns in June 2012.

Points to Note:

Though this is good news, there are some things that we need to keep in mind:

1. The annual income comprises of the individuals salary and any other income that he/she may earn through bank interest, dividend income from Mutual Funds, Capital Gains from Shares etc
2. If your annual income including all the above mentioned entities is more than 5 lakhs, you need to file tax returns even if your salary is less than 5 lakhs.
3. Filing your tax returns is always a good idea if you are thinking of buying a home. Banks often ask for the past 2-3 years of IT Returns when you apply for a home loan and hence, it’s a good idea to file your returns to show that you are a responsible citizen as well as to cement the fact that you are earning legal income and can afford to repay the home loan EMI


There is still not much clarity about this 5 lakh limit. Does this cover only people whose annual income is less than 5 lakhs or does this cover people whose annual taxable salary is less than 5 lakhs.

Lets say an individuals annual salary is 7.5 lakhs. He gets a 1 lakh exemption under Section 80C (Investments) and another Rs. 1.5 lakh exemption on his home loan interest and another Rs. 15000 on Medical expenses. If we deduct all these exemptions (amounting to 2.65 lakhs), this individuals net taxable income is only Rs. 4.85 lakhs.

So, in this case, should this person file his returns or not?

Well, unfortunately, there is not much clarity on this front. Experts feel that, this ruling is applicable for these individuals as well, but it isn’t confirmed yet. If there is any clarity on this topic, as you might already know, we will cover that in my blog as always!!!

That’s it for now. Happy Tax Filing!!!

Monday, June 6, 2011

Top 50 Indian Companies

Ever wondered what the largest companies in India based on Market Capitalization are? Well, if you did, here is your answer…

But, before we begin, lets see what is Market Capitalization:

Market Capitalization is the total value of the all the outstanding shares of a company at the current market price. Let say there are 100 shares of your company in the market and each share is trading at Rs. 10, your Market Capitalization is Rs. 1000/-

When the price per share increases to Rs. 20, your Market Capitalization is Rs. 2000/-

The list below is the top 50 companies in India that are listed in the Bombay Stock Exchange based on their Market Capitalization.

A point to note here is that, being a part of this big 50 is a privilege and honor for major companies and maintaining their position is very important for them. Reliance Industries has been the No.1 company as per their Market Capitalization for quite sometime.

Trivia: After Coal India's IPO, people expected the share price to breach Rs. 500 per share and take the No.1 spot, but the long time leader Reliance Industries has kept its place. It remains to be seen, for how long it will do it!!!

The 50 Largest Companies in India

1. Reliance Industries
2. Coal India Ltd
3. Oil and Natural Gas Corporation (ONGC)
4. TATA Consultancy Services Ltd (TCS)
5. Infosys Technologies Ltd
6. ITC Ltd
7. State Bank of India (SBI)
8. Bharti Airtel
9. National Thermal Power Corporation of India (NTPC)
10. ICICI Bank
11. HDFC Bank
12. Wipro Ltd
13. Larsen & Toubro (L&T)
14. NMDC Ltd
15. Housing Development Finance Corporation (HDFC)
16. Bharat Heavy Electricals Ltd (BHEL)
17. MMDC
18. Indian Oil Corporation
19. Hindustan Unilever
20. Adani Entertaiment
21. TATA Motors
22. Cairn India Ltd
23. Steel Authority of India Ltd (SAIL)
24. Jindal Steel
25. Hindustan Zinc
26. Sterlite Industries
27. GAIL
28. TATA Steel
29. Axis Bank
30. Sun Pharmaceuticals
31. Power Grid Corporation
32. Mahindra & Mahindra
33. Nestle
34. DLF Ltd
35. Bajaj Auto
36. Hero Honda
37. Hindalco
38. Maruti Suzuki
39. HCL Technologies
40. Punjab National Bank
41. Bank of Baroda
42. Reliance Power
43. Kotak Mahindra Bank
44. Mundra Port
45. Oil India Ltd
46. Siemens
47. Asian Paints
48. National Hydro-Electric Power Corporation (NHPC)
49. TATA Power
50. Ultratech Cement

Note: This is as of June 2011 and the order might change due to the movement in prices of individual stock prices. But, over all, the top 40 odd companies will seldom change. Newer companies might take up the last 5-10 slots, but the top ones are there to stay…

Company's like Unitech, GMR Infra, Idea Cellular were all part of this top 50 in the past. Because of their current price slump, they have been replaced by other companies. Given their good track record and consistent performance, they are sure to bounce back and take back their rightful place in the top 50...

Sunday, June 5, 2011

Pay for your Education through an Education Loan

For most of us, paying for our education was something that our dad did. Oh yes, we enjoyed our college education when our parents paid the fees. Well, to be honest not all the teenagers in India are fortunate to have parents who earn enough to fund the education their kids aspire.

But, thankfully banks these days offer you Education Loans that help teenagers who aspire to study and become something that they cannot if their parents have to pay the fees...

Yes, Education Loans. They are a blessing in disguise for everyone who want to study and become something their parents could not.

What is an Educational Loan?

An Educational Loan is a loan that banks offer to students who are taking up many educational courses across the country and in some cases even abroad. The bank will pay for the college fee and a whole variety of fees that the students might incur during their studies. Eventually the student can start repaying the loan once they finish their education.

Sounds fine doesn’t it?

Unfortunately it isn’t as easy as it sounds. Lets dig deep into some details...

Do All Banks Offer Education Loans?

No. Not all banks in India offer Education Loans. And some banks have restrictions like, the students parents must have a valid bank account for atleast 6 months or the residence of the person asking the loan must be within 2 km from the bank branch and so on...

So, it is our responsibility to perform all the requisite due diligence to ensure that we know what all the bank will ask for when we go to them for the loan.

Loan Repayment:

Well, banks are businesses and are run for a profit. Though, an educational loan looks to be a noble cause, banks cannot afford to grant you the loan for free. Since you aren’t going to start repaying the loan for atleast 2 years or more for your education, the bank is investing in something that isn’t going to start repayment for quite some-time in future. So, they will be cautious and extra careful when someone asks them for an education loan.

Also, some banks give a moratorium of 6 months after your education completion to begin repayment, while some give upto 1 year and in worst case, some give you nothing. You need to start the repayment as soon as you finish your education.

So, make sure you read the repayment terms and conditions to ensure that you don’t get a shock just after finishing your studies.

Cost of Education Loans

The cost when it comes to education loans is the rate of interest you pay on the loan. Luckily the rate of interest offered is almost constant across all banks that offer these loans with probably a 0.5 to 1% difference at max. Remember that a rate of interest of 13% with no processing fee is obviously cheaper than a 12% rate of interest loan with a 2% processing fee.
So, make sure that you check out the cost of the education loan and choose a bank that offers you a good deal.

What are the Courses Eligible for Education Loans?

There are many educational courses that are eligible for an education loan. Some are:
Courses in India:
1. Graduation courses like BA, B.Com, B.Sc etc
2. Post Graduation courses like M.Sc, M.Com, PhD etc.
3. Professional Courses like Engineering, Medicine, Law, Veterinary, Management etc
4. Courses like ICWA, CA, CFA etc
Courses Abroad:
1. Post Graduation Courses like MCA, MBA, MS etc
2. Graduation courses offered by reputed universities

Please note that, this is not an exhaustive list. It is just an indicative list that shows you the kind of courses that can be used to get an education loan.

Amount of Money you can Get

For most banks, the amount of money you can get as an educational loan varies between 7.5 lakhs and 15 lakhs for study within India (Private Banks offer a higher amount but at a higher interest rate)

The amount is between 15 to 20 lakhs for study abroad. (Again private banks offer a higher amount but only at a higher interest rate)

What is the Repayment Period for the Loan?

The repayment period is between 5 to 7 years and it depends from bank to bank. You can even choose to repay the loan earlier than the scheduled duration if you want.

Are there any Tax Benefits?

Repayments for Educational Loans are eligible for tax rebate under the section 80E of the Indian Income Tax Laws for the entire interest amount paid towards the education loan.

Remember to get an interest paid statement from your bank and use it when you file your tax returns to get the tax benefits.

What are the Documents Required for an Education Loan?

To be honest, the list below is only indicative and not exhaustive. The documents required may change from bank to bank.

1. Mark sheets of your last qualifying exam
2. Proof of admission into the college
3. Schedule of expenses for the course
4. Photographs (Usually passport size)
5. Bank Account Statement of the Borrower for the last six months (If Applicable)
6. Income tax Assessment statement of the guardian (Parents or Guardians)
7. Statement of Assets & Liabilities of the co-borrower (Parents or Guardians)
8. Proof of Income of the Guardian
9. Identity Proof like Driving License, Passport or Voters ID for both the student and the Guardian
10. Address Proof like Ration Card or Electricity Bill etc

I repeat, the list above is not exhaustive but it covers most of the documents that may be required to get an education loan.

Important Do’s and Don’ts for Education Loans

Getting an education loan is a long term commitment and requires a lot of thought before you apply for one. Since it’s a long term financial commitment, certain things are important and you need to remember them. They are:

1. Do thorough research while applying for an education loan
2. See if your requirements match with the requirements of the bank
3. Read all documents carefully, NEVER ASSUME ANYTHING
4. Try to understand all the terms and conditions properly
5. Don’t involve any middle agents or brokers. It is better to deal with the bank directly
6. Preferably opt for a bank that is near your home where you or your parents have a bank account for a few years and have a good reputation
7. Make sure you submit all the relevant documents
8. Do not forge any documents in an attempt to fast-track your case
9. Do not attempt to bribe anyone
10. Make sure you follow-up with bank officials regularly

Happy Studying!!!
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