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Gold and Silver

Understanding Financial Planning and the key areas of a Financial Plan

Financial Planning

Financial Planning

A life without goals is really not worthy.

Goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. In order to accomplish these goals, a proper planning and management of your money is required.

Thus Financial planning is the process of meeting your life goals through proper management of your finances.

Globally, money environment has witnessed a sea change in the last few years. Gone are the days when there were limited investment options and investors did not have much to plan on their investments and generally, bank managers, accountants, share broker and insurance agents generally provided advice on investment to individuals. Most of it is restricted to recommending you one particular product, more often from their own parent company or is guided by their targets or commission.

But now we have multiple choices. This has added complexity to the decision-making process about our money. And thus more and more people are now turning to professional financial planner for a comprehensive roadmap on financial planning to achieve their all money related goals. A financial planner in essence, assist them to make informed decisions about their money and how it can be used to best advantage.

Financial planning essentially involves the following steps:

1. Assessment: The first step is to assess the financial position with the help of personal financial balance sheets and income statements. A personal balance sheet includes personal assets such as investments in various financial instruments, including bank, cash, property etc. The balance sheet also includes personal liabilities, which includes all the loans, credit card balance, any other liabilities.

2. Defining goals: As explained earlier goals may include worldly things like buying a home, saving for your child’s education or marriage or planning for retirement or even planning a vacation. One must also define objective and time frame of goals.

3. Making financial plan: The financial plan gives you  the structure and clear cut roadmap to achieve  your goals. A financial plan includes the investments you can make (with whatever existing fund and income sources), their expected yields, your current and expected future income and expenses. It also helps you visit your current investments and help you take a decision on whether to keep them or replace them with more secure / better yielding asset. It also help you look at the current expenses and how they might impact your financial goals.

4. Execution: An effective execution of  personal financial plan can help you achieve your financial goals. Your financial planner plays a very crucial role in helping you execute the plan.

5. Monitoring: You must take help of your financial planner to monitor your financial health and the effectiveness of the investments you have made. It is essential to monitor on a regular basis as the micro and macro economic changes might ask you to take a look into your current financial health.

Some of the key areas that a well drafted Financial Plan must include are:

a) Current financial position: This can be ascertained with the help of making a net worth statement that includes your assets and liabilities.

b) Emergency fund: Emergence fund helps you meet your emergency expenses. A reasonable amount of money which may be calculated depending on the your current lifestyle, family, flow of income.

c) Risk and Protection planning: Risks in the context of financial planning can be divided into liability (loans etc.), property (fire, theft etc.), death (loss of income to your dependents) , disability and health (medical emergencies). Lets look at the generally heard life insurance. Different people buy life insurance for different reasons, but most of us have a need for it at some point in our lives. The type we need, the amount we need, and the reasons why we need it may change; but it definitely plays a vital role in most financial plans. Here are some reasons why people purchase life insurance:

To Pay off debts
Life insurance can be an inexpensive way to make sure there is ready cash to cover any financial obligations (Loans etc.) you leave behind.

Replace your income for your family
It helps to cover the uncertainties in our life. It helps your Children to complete their education, your wife to take care of the household expenses, your dependent parents to live their life comfortably in case you are not with them.

Tax planning ( u/s 80 C )
Many people use life insurance as part of tax planning strategy designed to potentially reduce taxes.

One must choose his insurance plan with utmost care. The choices available are:

  • Term Insurance
  •  Endowment
  •  Whole Life Insurance
  •  Medical Insurance (Regular)
  •  Critical Illness
  •  Accidental and Permanent Disability
  •  Key Person Insurance
  •  Employee Benefit

Other Key Insurance requirement includes :

  •  Vehicle Insurance
  •  House Insurance
  •  Factory Insurance
  •  Travel Insurance
  •  Professional Indemnity

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.

d) Investment planning: What rate of return do you need to meet your goals? Are your current investments achieving the return? What is the best asset allocation (Mutual Fund, FD’s, Bullion, Cash, Insurance, PF, Bonds, Property etc.) suited to your profile. What investments opportunities do you use to implement this asset mix? What shall be the best Mutual Fund, FD and other such investments are suited to your needs?

Their is no definite answer to all these. It all depends on person to person. You may have a different risk profile, life goals, time horizon, and current portfolio than that of your friend.

e) Tax planning: Tax Planning essentially means using a strategy to either reduce or shift your current tax liabilities. Even Government allows and encourages tax saving to us. Tax planning saves you your hard earned money. And avoids last minute rush to put your money into investments such as u/s 80C. And other sections also you ample opportunity to save you your taxes.

There are investments that are totally exempted from Tax on their profit. And some get concessional tax treatment, which means they are taxed at a lower rate. It also benefits if you meticulously define out in whose name in the family to invest, so as to reduce the tax liability, if any. A salaried person can also reduce its Tax liability by various means. Lets look at some of the tax saving instruments :

U/s 80C
Public Provident Fund. Maximum amount is s. 70000/- in a year
Employee Provident Fund
National Saving Certificates
Kisan Vikas Patra
Insurance Policies
ELSS
Tax saving FDs
New pension schemes
Senior citizen saving scheme
Children Tuition fee
Repayment of housing loan (Principal)

U/s 80CCF
Specified Infrastructure bonds upto Rs. 20000/-

U/s 80D
Premium paid for mediclaim insurance for individual Rs. 15000/- and another Rs. 20000/- if paid for parents who are senior citizens

U/s 80DD
Expenditure on handicapped dependents from Rs. 50000/- to Rs. 100000/- depending on the severity

U/s 80DDB
Expenditure incurred on specified diseases or ailments

U/s 80E
Interest paid on higher education loan

U/S 24(1)(Vi)
Interest paid on housing loans

f) Retirement Planning: Old Age typically brings income Insecurity, dependency on children, medical expenses, but most of the people are generally not worried about their old age and retirement.  Let’s start tackling the how of retirement planning by asking the No.1 retirement question: “How much money do I need at the time of my retirement’’ ?

The answer to this question contains some good news and some bad news. First, the bad news: There really is no single number that would guarantee everyone an adequate retirement. It depends on many factors, including your desired standard of living, your expenses (including any medical costs) and your target retirement age. Now for the good news: It’s entirely possible to determine a reasonable number for your own retirement needs. All it involves is answering a few questions and doing some number crunching. Providing you plan ahead and estimate on the conservative side, it’s entirely possible for you to accumulate a nest egg sufficient to last you through your golden years. There are several key tasks you need to complete before you can determine what size of nest egg you’ll need in order to fund your retirement. These include the following:

Decide the age at which you want to retire.
Decide the annual income you’ll need for your retirement years. It may be wise to estimate on the high end for this number. Generally speaking, it’s reasonable to assume you’ll need about 70% – 80% of your current annual salary in order to maintain your current standard of living.
Determine a realistic annualized real rate of return (net of inflation) on your investments. Conservatively assume inflation will be 6-7 % annually.
A realistic rate of return would be 7 -10%. Again, estimate on the low end to be on the safe side.

g) Estate planning: Estate Planning essentially includes having a succession plan in place, so that your dependents, other family members and the people you love must know how your assets be distributed in an unfortunate event of you being no more in this world. If a person dies without a will or trust, known as dying intestate, he / she generally leaves heirs confused or fighting over who gets what from their assets.
In order to have a good succession plan in place, one must consider the following :
• Decide whether you need will or living trust!
Both are part of estate planning. A Will act as a guide on distribution of assets. Living trust is generally safer and let your assets be distributed in a cost effective manner and without the hassle of probate of will. You can have a living trust that allows you manage your assets during your life. And after your demise these assets are then passed on to your beneficiaries. Trusts are more helpful when you have valuable properties and / or a complex successor tree. Having both will and trust is a better idea in certain cases.

Who shall be the beneficiaries
• If your children are still very young then who shall be their guardian
• Who shall be the best person to execute your will or act as successor trustee
• Assignment of medical power of attorney
You must take inventory of all your assets, which includes your
• Immovable and movable property
• Financial assets such as shares, bonds, insurance policies
• Business interests
After you have taken the stock of all your assets, name the beneficiaries to whom you wish to pass on your assets. You can make changes in your will any time; make sure to add details of the old will to avoid any ambiguity. You must also review your succession plan regularly, especially if you there is a change in your marital status or a new baby is born.

Determining how much insurance to get, at the most cost effective terms will help you get better value for money.

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Investments options available in India for NRIs and PIOs

Investment options available for NRIs

Investment options for NRIs

More and more NRI’s (Non Resident Indians) and PIOs (Person of Indian Origins) are investing in India in order to get higher returns on their investments as compared to the country they are living in. And the Government of India has also made it easy for NRIs and PIOs to invest in India. NRIs and PIOs are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with authorized dealer.

What are the different types of accounts which can be maintained by an NRI/PIO in India?

If a person is NRI or PIO, she/he can, without the permission from the Reserve Bank of India (RBI), open, hold and maintain the different types of accounts given below with an ‘Authorised Dealer’ in India, i.e. a bank authorised to deal in foreign exchangeNRO Savings accounts can also be maintained with the Post Offices in India. However, individuals/ entities of Bangladesh and Pakistan require prior approval of the Reserve Bank of India.

Types of accounts which can be maintained by an NRI / PIO in India :

A. Non-Resident Ordinary Rupee Account (NRO Account)

NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts.

● Savings Account – Normally maintained for crediting legitimate dues /earnings / income such as dividends, interest etc. Banks are free to determine the interest rates.

●  Term Deposits – Banks are free to determine the interest rates. However, theycannot be higher than those offered by them on comparable domestic rupee deposits.

● Account should be denominated in Indian Rupees.

● Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.

● Eligible debits such as all local payments in rupees including payments for investments as specified by the Reserve Bank and remittance outside India of current income like rent, dividend, pension, interest, etc., net of applicable taxes, of the account holder.

● NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.

● The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs.

● The accounts may be held jointly with residents and / or with non-resident Indian.

● The NRO account holder may opt for nomination facility.

● NRO (current/savings) account can also be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.

● Loans to non-resident account holders and to third parties may be granted in Rupees by Authorized Dealer / bank against the security of fixed deposits subject to certain terms and conditions.

B. Non-Resident (External) Rupee Account (NRE Account)

● NRE account may be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.

● NRIs as defined in Notification No. FEMA 5/2000-RB dated May 3, 2000 may be permitted to open NRE account with their resident close relatives (relative as defined in Section 6 of the Companies Act, 1956) on ‘former or survivor ‘ basis.  The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with the extant instructions during the life time of the NRI/PIO account holder.

● Account will be maintained in Indian Rupees.

● Balances held in the NRE account are freely repatriable.

● Accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

● Authorised dealers/authorised banks may at their discretion/commercial judgement allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000 subject to the condition that such overdrawings together with the interest payable thereon are cleared/repaid within a period of two weeks, out of inward remittances through normal banking channels or by transfer of funds from other NRE/FCNR accounts.

● Savings – Banks are free to determine the interest rates.

 Term deposits – Banks are free to determine the interest rates of term deposits of maturity of one year and above. Interest rates offered by banks on NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.

● Permissible credits to NRE account are inward remittance to India in permitted currency, proceeds of account payee cheques, demand drafts / bankers’ cheques, issued against encashment of foreign currency, where the instruments issued to the NRE account holder are supported by encashment certificate issued by AD Category-I / Category-II, transfers from other NRE / FCNR accounts, sale proceeds of FDI investments, interest accruing on the funds held in such accounts, interest on Government securities/dividends on units of mutual funds purchased by debit to the NRE/FCNR(B) account of the holder, certain types of refunds, etc.

● Eligible debits are local disbursements, transfer to other NRE / FCNR accounts of person eligible to open such accounts, remittance outside India, investments in shares / securities/commercial paper of an Indian company, etc.

● Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either to the depositors or third parties.

● Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself.

C. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account

● FCNR (B) accounts are only in the form of term deposits of 1 to 5 years

● All debits / credits permissible in respect of NRE accounts, including credit of sale proceeds of FDI investments, are permissible in FCNR (B) accounts also.

● Account can be in any freely convertible currency.

● Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties.

● The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India. In respect of FCNR (B) deposits of all maturities contracted effective from the close of business in India as on November 23, 2011, interest shall be paid within the ceiling rate of LIBOR/SWAP rates plus 125 basis points for the respective currency/corresponding maturities (as against LIBOR/SWAP rates plus 100 basis points effective from close of business on November 15, 2008). On floating rate deposits, interest shall be paid within the ceiling of SWAP rates for the respective currency/maturity plus 125 basis points. For floating rate deposits, the interest reset period shall be six months.

● When an account holder becomes a person resident in India, deposits may be allowed to continue till maturity at the contracted rate of interest, if so desired by him.

● NRI can open joint account with a resident close relative (relative as defined in Section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative will be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.

Can an individual resident Indian borrow money from his close relative outside India ?

Yes, an individual resident Indian can borrow sum not exceeding USD 250,000 or its equivalent from his close relatives staying outside India, subject to the conditions that:

  1. the minimum maturity period of the loan is one year;
  2. the loan is free of interest; and
  3. the amount of loan is received by inward remittance in free foreign exchange through normal banking channels or by debit to the NRE/FCNR(B) account of the NRI.

Can an individual resident lend money to his close relative NRI / PIO?

Yes, an individual resident can lend money by way of crossed cheque /electronic transfer within the overall limit of USD 200,000 per financial year under the Liberalised Remittance Scheme, to meet the borrower’s personal or business requirements in India, subject to conditions. The loan should be interest free and have a maturity of minimum one year and cannot be remitted outside India.

Can an individual resident repay loans of close relative NRIs to banks in India?

Yes, where an authorised dealer in India has granted loan to a non-resident Indian such loans may also be repaid by resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the Non-Resident Indian by crediting the borrower’s loan account through the bank account of such relative.

What are the other facilities available to NRIs / PIO?

A. Investment facilities for NRIs :

NRI may, without limit, purchase on repatriation basis:

● Government dated securities / Treasury bills

● Units of domestic mutual funds;

● Bonds issued by a public sector undertaking (PSU) in India.

● Non-convertible debentures of a company incorporated in India.

● Perpetual debt instruments and debt capital instruments issued by banks in India.

● Shares in Public Sector Enterprises being dis-invested by the Government of India, provided the purchase is in accordance with the terms and conditions stipulated in the notice inviting bids.

● Shares and convertible debentures of Indian companies under the FDI scheme (including automatic route & FIPB), subject to the terms and conditions specified in Schedule 1 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedule 3 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

NRI may, without limit, purchase on non-repatriation basis :

● Government dated securities / Treasury bills

● Units of domestic mutual funds

● Units of Money Market Mutual Funds

● National Plan/Savings Certificates

● Non-convertible debentures of a company incorporated in India

● Shares and convertible debentures of Indian companies through stock exchange under Portfolio Investment Scheme, subject to the terms and conditions specified in Schedules 3 and 4 to the FEMA Notification No. 20/2000- RB dated May 3, 2000, as amended from time to time.

● Exchange traded derivative contracts approved by the SEBI, from time to time, out of INR funds held in India on non-­repatriable basis, subject to the limits prescribed by the SEBI.

Note : NRIs are not permitted to invest in small savings or Public Provident Fund (PPF).

B. Investment in Immovable Property

● NRI / PIO / Foreign National, who is a person resident in India (citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal and Bhutan would require prior approval of the Reserve Bank of India), may acquire immovable property in India other than agricultural land/ plantation property or a farm house out of repatriable and / or non-repatriable funds.

● The payment of purchase price, if any, should be made out of

(i) funds received in India through normal banking channels by way of inward remittance from any place outside India or

(ii) funds held in any non-resident account maintained in accordance with the provisions of the Act and the regulations made by the Reserve Bank of India.

Note : No payment of purchase price for acquisition of immovable property shall be made either by traveller’s cheque or by foreign currency notes or by other mode other than those specifically permitted as above.

● NRI may acquire any immovable property in India other than agricultural land / farm house plantation property, by way of gift from a person resident in India or from a person resident outside India who is a citizen of India or from a person of Indian origin resident outside India

● NRI may acquire any immovable property in India by way of inheritance from a person resident outside India who had acquired such property in accordance with the provisions of the foreign exchange law in force at the time of acquisition by him or the provisions of these Regulations or from a person resident in India

● After the purchase is made, it is required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.

● An NRI may transfer any immovable property in India to a person resident in India.

● NRI may transfer any immovable property other than agricultural or plantation property or farm house to a person resident outside India who is a citizen of India or to a person of Indian origin resident outside India.

In respect of such investments, NRIs are eligible to repatriate:

● The sale proceeds of immovable property in India if the property was acquired out of foreign exchange sources i.e. remitted through normal banking channels / by debit to NRE / FCNR (B) account.

● The amount to be repatriated should not exceed the amount paid for the property in foreign exchange received through normal banking channel or by debit to NRE account (foreign currency equivalent, as on the date of payment) or debit to FCNR (B) account.

● In the event of sale of immovable property, other than agricultural land / farm house / plantation property in India, by a person resident outside India who is a citizen of India  / PIO, the repatriation of sale proceeds is restricted to not more than two residential properties subject to certain conditions. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non resident rupee account of the owner of the property. Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank at Mumbai within 90 days of the sale of the property.

● If the property was acquired out of Rupee sources, NRI or PIO may remit an amount up to USD one million per financial year out of the balances held in the NRO account (inclusive of sale proceeds of assets acquired by way of inheritance or settlement), for all the bonafide purposes to the satisfaction of the Authorized Dealer bank and subject to tax compliance.

● Refund of (a) application / earnest money / purchase consideration made by house-building agencies/seller on account of non-allotment of flats / plots and (b) cancellation of booking/deals for purchase of residential/commercial properties, together with interest, net of taxes, provided original payment is made out of NRE/FCNR (B) account/inward remittances.

Repayment of Housing Loan of NRI / PIOs by close relatives of the borrower in India

Housing Loan in rupees availed of by NRIs/ PIOs from ADs / Housing Financial Institutions in India can be repaid by the close relatives in India of the borrower.

C. Investment under the Portfolio Investment Scheme (PIS)

NRIs and PIOs are permitted purchase or sale of equity shares / CCPS / CCDs of Indian companies listed on Indian stock exchanges through a registered broker, subject to the following conditions:

● The total paid-up value of shares or convertible debentures purchased by an NRI both on a repatriation and non-repatriation basis does not exceed 5% of the paid-up value of the Indian company’s shares

● The aggregate paid-up value of shares or convertible debentures purchased by all NRIs in the Indian company does not exceed 10% of the paid-up value of the Indian company. The ceiling of 10% can be raised to 24% through a special resolution.

The sale proceeds of equity shares / CCPS / CCDs are permitted to be credited by the NRI to:

● His / her NRO account where the purchase was made out of the funds held in his Non Resident ordinary (NRO) account or where the purchase was on non-repatriation basis

● His / her NRE/FCNR/NRO account where the purchase was on a repatriation basis.

D. Facilities to returning NRIs/PIOs

● Returning NRIs/PIOs may continue to hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India, if such currency, security or property was acquired, held or owned when resident outside India

● The income and sale proceeds of assets held abroad need not be repatriated.

Foreign Currency Account

● A person resident in India who has gone abroad for studies or who is on a visit to a foreign country may open, hold and maintain a Foreign Currency Account with a bank outside India during his stay outside India, provided that on his return to India, the balance in the account is repatriated to India. However, short visits to India by the student who has gone abroad for studies, before completion of his studies, shall not be treated as his return to India.

● A person resident in India who has gone out of India to participate in an exhibition/trade fair outside India may open, hold and maintain a Foreign Currency Account with a bank outside India for crediting the sale proceeds of goods on display in the exhibition/trade fair. However, the balance in the account is repatriated to India through normal banking channels within a period of one month from the date of closure of the exhibition/trade fair.

Resident Foreign Currency Account

● Returning NRIs /PIOs may open, hold and maintain with an authorised dealer in India a Resident Foreign Currency (RFC) Account to transfer balances held in NRE/FCNR(B) accounts.

● Proceeds of assets held outside India at the time of return can be credited to RFC account.

● The funds in RFC accounts are free from all restrictions regarding utilisation of foreign currency balances including any restriction on investment in any form outside India.

● RFC accounts can be maintained in the form of current or savings or term deposit accounts, where the account holder is an individual and in the form of current or term deposits in all other cases.

RFC accounts are permitted to be held jointly with the resident close relative(s) as defined in the Companies Act, 1956 as joint holder (s) in their RFC bank account on ‘former or survivor basis’. However, such resident Indian close relative, now being made eligible to become joint account holder shall not be eligible to operate the account during the life time of the resident account holder.

General facilities

Can Exchange Earners Foreign Currency (EEFC) accounts be held jointly with a -resident Indian?

Yes, EEFC account of a resident individual can be held jointly with a resident close relative on a ‘former or survivor’ basis.

However, such resident Indian close relative will not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual holding a savings bank account include nonresident close relative as a joint account holder?

Yes, individuals resident in India are permitted to include non-resident close relative(s) as a joint holder(s) in their resident bank accounts on ‘former or survivor’ basis. However, such non- resident Indian close relatives shall not be eligible to operate the account during the life time of the resident account holder.

Can a resident individual gift shares/securities/convertible debentures etc to NRI close relative?

Yes, a resident individual is permitted to gift shares/securities/convertible debentures etc to NRI close relative up to USD 50,000 per financial year subject to certain conditions.

Can a resident individual give rupee gifts to his visiting NRI/PIO close relatives?

Yes, a resident individual can give rupee gifts to his visiting NRI/PIO close relatives by way of crossed cheque/electronic transfer within the overall limit of USD 200,000 per financial year for the resident individual and the gifted amount should be credited to the beneficiary’s NRO account.

What types of services can be provided by a resident individual to his / her nonresident close relatives?

A resident may make payment in rupees towards meeting expenses on account of boarding, lodging and services related thereto or travel to and from and within India of a person resident outside India who is on a visit to India. Further, where the medical expenses in respect of NRI close relative are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may also be covered under the term “services”.

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Budget 2013 — Highlights for you

simplifying budget 2013

budget 2013

Want to know in brief about the budget 2013. Here are the highlights of the budget in simple words.

1.. Income Tax Slab : There is no change in the Tax slab. However an individual with an income of Rs. 5,00,000 will get a tax credit of Rs. 2000/-. Thus if your net tax payable is Rs 10,000, your liability will be limited to Rs 8,000 only. In other words, if your income is less than Rs. 5,00,000, your basic threshold limit for tax trigger now effectively stands at Rs. 2,20,000/-.

2.. Earning more than 1 cr. : If you are those lucky 42,800 tax payers in India, who are earning more than rupees one crore, then you will have to pay an additional one time surcharge of 10% for the FY 2013-2014. This will be in addition to the education cess paid on total income-tax.

The impact of surcharge will be contained by marginal relief, which means that the surcharge can not be in excess of income that exceeds Rs. 1 cr. Thus if your taxable income is Rs.1,00,05,000, your total tax liability will increase by Rs.5,000 only and not Rs. 2,90,000.

3.. Interest on home loan: If you take a housing loan of a maximum Rs 25 lakh this year, you can claim an additional tax break of Rs 1 lakh on interest payment. This is in over and above the current limit of Rs 1.5 lakh. But it is subject to the following conditions:

a) The amount of loan sanctioned for acquisition of the residential house property must not exceed Rs. 25 lakh.

b) The value of the residential house property must not exceed Rs. 40 lakh.

c) Loan should be obtained from bank / home finance institution and must be sanctioned during the period beginning 1st April, 2013 and ending on 31st March, 2014.

d) The assessee should not own any other residential house property on the date of sanction of the loan.

e) If the interest payable is less than Rs. 1 lakh, the balance amount can be allowed in next assessment year.

4.. Rajiv Gandhi Equity Saving Scheme (RGESS): Now an individual with an income of up to Rs. 12 lakh can invest in Rajiv Gandhi Equity Saving Scheme (RGESS). Earlier only those with income of Rs 10 lakh and less could invest in the scheme. This scheme is available to the new retail investor who acquires listed equity shares / equity oriented mutual funds in accordance with the scheme.

It is further proposed to provide deduction for three consecutive years, beginning with the year in which the listed equity shares or listed units were first acquired by the new retail investor.

5.. Tax free bonds: You can soon look forward to more tax-free bonds. The finance minister has permitted some institutions to issue tax free bonds in 2013-14 for up to Rs 50,000 cr. Some institutions are expected come with tax free bonds soon.

6.. Inflation indexed bonds: And if you are worried about the inflation eating into your savings, then their is a good news for you too. There shall be a an announcement soon on “Inflation Indexed Bonds” and “Inflation Indexed National Security Certificates”.

7.. Fewer hassles to buy life insurance: Finance minister has also made it clear that ‘know your client’ (KYC) requirement once fulfilled for a bank, are enough to buy an insurance policy. Such a KYC compliant individual need not go through another such process conducted by insurance company.

Banks are also allowed to act as an insurance broker. Now banks can sell insurance of multiple insurance companies, instead of just one company. This further increases number of options for customers and help them move ahead in the financial world.

8.. TDS on transfer of immovable properties:  FM has proposed that every transferee / purchaser, at the time of making payment or crediting of any sum as consideration for transfer of immovable property (other than agricultural land) to a resident seller, shall deduct tax, at the rate of 1% of such sum. This amendment will take effect from 1st June’ 2013

9.. Securities transaction tax: It has been proposed to reduce Securities Transaction Tax (STT) for certain transactions such as equity futures on recognized stock exchanges (from 0.017% to 0.01%), redemption of equity-oriented mutual fund units (from 0.25% to 0.001%) and sale of equity-oriented mutual fund units on recognized stock exchanges (from 0.1% to 0.001%). STT of 0.1% levied on the purchaser of equity-oriented mutual fund units on stock exchange is also abolished.

And if you are a derivative trader in commodities market, you have to pay CTT at the same rate applicable to equity futures. There was no CTT earlier.

10.. Custom duty on luxury Cars: Basic customs duty on new passenger cars and other motor vehicles (high-end cars) costing more than US $ 40,000 and / or engine capacity exceeding 3,000 cc for petrol run vehicles and exceeding 2500 cc for diesel run vehicles has been hiked to 100 % from 75 % earlier.

Import duty on motorcycles above 800 cc will also go up from 60% to 75%. Duty on sports utility vehicles has also been increased from 27 % to 30 %, excluding those used for commercial purposes. Likewise, duty on yachts and similar vessels has also been raised to 25 % from 10 % earlier.

11.. Importing Gold:  Duty-free limit on imported jewellery raised to Rs 50,000 in the case of a male passenger and Rs 100,000 in the case of a female passenger.

12.. DDT on mutual funds: FM has proposed to increase dividend distribution tax (DDT) on debt fund investments for retail investors from 12.5% to 25%.
DDT is the tax that debt mutual funds pay on the dividend income that has to be distributed to its investors. Liquid funds now pay a DDT of 25% (exclusive of surcharge and cess). All other types of debt funds pay 12.5% (exclusive of surcharge and cess) on income distributed to retail investors.
According to the budget proposals for the year starting 1 April, DDT paid by all types of debt funds (liquid funds and other debt MFs) to retail investors will be 25%.

13.. Bank for women: India will start its first bank exclusively for women by October 2013. The government will provide initial capital of Rs.1,000 crore to get the venture going. It will lend mostly to women entrepreneurs, women self-help groups. and will employ predominantly women.

14.. Others:

a) Mobiles costing more than Rs. 2000 will get slightly expensive as the duty has been increased from 1% to 6%.
b) Increase on tax of payments by way of royalty from 10 % to 25 %.
c) Concessional rate of tax at 15 % for an Indian company on income received from its foreign subsidiary.
d) Increase in specific excise duty on cigarettes, cigars will make them a little costlier.
e) Set top boxes – Import duty increased – 5% to 10%.
f) Service tax will not be levied on A/C restaurants that do not serve liquor.
g) Investor with stake of 10 % or less will be treated as FII; any stake more than 10 % will be treated as FDI.
h) Fiscal deficit for current fiscal estimated at 5.2%.
i) GDP growth for 2013-14 seen at 4.8%.
J) Increased allocation in defence to Rs 2.03 lakh crore in FY 14.

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Now it becomes easier for retail investors to invets in gold/silver at wholesale prices


If you are looking to invest in physical Gold and Silver this festive season in small quantities, you can now take advantage of wholesale prices and invest online with an ease while sitting at comfort of your home.

Finkurve Bullion, promoted by NCDEX Spot Exchange Ltd (NSPOT), RiddiSiddhi BullionsL and Finkurve Financial Services Ltd (FFSL) has made available an online platform, called Bullion India, to investors in India. It enables you to buy and sell gold and silver or even store with them. One can buy as low as 0.1 gm of gold or 1 gm of silver. Gold bars are available in 1gm, 5gms and 10gms of 24 karat 99.5 percent purity and silver bars in 10gms, 20gms, 50gms and 100 gms of 24 karat 99.9 percent purity.

Bullion India also promises to ensure purity of 24 cts with only ‘in the loop’ imported bars approved under London Good Delivery Rules are purchased. Though their is no brokerage charged for buying, selling and redeeming at any given point of time, there are some small delivery charges and are fully insured.

Prithviraj Kothari, director of RiddiSiddhi Bullion in a statement said “People across the country wants to buy physical gold and silver and put them to use when the time is right. Bullion India is the medium that enables a retail client to purchase gold and silver as if they were buying shares and still use them physically whenever they need them. With such price advantage, retail investors can take the opportunity to add gold and silver to their portfolio”.

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Should I invest in Gold ?

gold prices

should i invest in gold

Does investment in gold at this time makes sense? Is this the best time to invest in Gold? This is the question which everybody is asking now a days. Gold has touched Rs. 32000/gm. And analyst are predicting gold hitting Rs. 35000 in another three months. The spectacular appreciation of gold in last four years, and the fact that equity markets are not performing well, have made many people rush to buy gold as investment even at these levels.

There are many factors that have contributed towards the rise in the gold prices, the major ones are the lack of trust and faith of investors in Governments and their Central banks and choppy equity markets. As banks continue to print money, investors are forced to opt for a safer “gold”. One can witness another rally in the short run if US goes for another round of Quantitative easing.

There are two theories on whether Gold will continue its rally in the medium to long run also. The first is that gold has rallied very fast in the last 3-4 years and hence is due for a correction. Speculative buying has pushed the gold into a bubble which is poised to burst anytime in the coming year. The other theory is that till the time investor’s confidence in Governments does not return back to normal and till the time financial markets do not start yielding decent returns, gold will continue to rise. And this might take some time.

Thus whether one should invest in Gold depends on the theory of relative comparison with other investment options available. Equity markets are at their 2 year low and still far away from their peak of January 2008. While Gold in last one year alone has given close to 35% returns. Thus stocks in medium to long term offer relatively better chance of bigger returns than gold. One must also keep in mind that in last 100 years, equity markets have outperformed gold perhaps 8/9 to 1 as an investment. Further if you have sufficient funds then investing in property also looks like a decent option.

Assuming that an average Indian already has a fairly large amount of gold in their portfolio, and might have invested more in the last 1-2 years, one must consider investing in other asset classes instead of adding more gold to their pool of investments.

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How to survive in these uncertain times

uncertain financial markets

how to survive in these uncertain times

Everyone is worried about their money and wondering what to do with their money and investments in these uncertain times when there are inflationary pressures, economic gloom and choppy equity markets. Global markets are hostage to political actions (remember Greece) as well as facing its own structural headwinds from deleveraging. Sensex is down on concerns about global growth, rising local debt, fiscal and current account deficits, high inflation ranging 8-9% and slowing GDP. Policy paralysis at the government level is now talk of the town and, more recently, the INR has declined and is now trading at its historical lows. High salaries are becoming hard to justify and Job promotions are held up. And now Fitch Ratings cut its credit outlook for India to negative from stable, nearly two months after rival Standard & Poor’s made a similar call, citing risks that India’s growth outlook could deteriorate.

Concerns are genuine, but we must ensure that we do not panic and survive these times. We need to review our portfolio, revisit our strategies and plan our future course of action.

Lets look at the areas where your money is parked right now and how you can prevent loosing it.

1.. Equity based mutual funds

Investment in Equity and Mutual Funds must always be for the long time. The markets at this juncture could loose another 20% or gain another 20% in 2012-2013. Stick with funds that have high Sharpe ratio. Avoid sector funds. It is advisable to invest in diversified large cap. Mid cap will be more volatile in next one year and might take more beating if the markets fall. Though they are also the one who might get you better returns if the market rise from here, yet might want to wait for some time to get into these.

One common mistake investors do is to invest in mutual funds that were on the top last year. Getting a couple of percentage points more last year is not much of a consolation if the gains of the last three to 5 years get are not up to the mark. Look at the consistent performers, even if they are not on the top always.

Investors who are investing through SIP should continue with it. That allows them to buy more units at lower NAV and thus average out their purchase price. If you do not want to take any risk than invest in an income fund and regularly transfer a fixed smaller amount to an equity fund.

2.. Debt funds

You are loosing money here also. With high inflation the real rate of returns in some cases is even negative. And now fund houses such as SBI, JP Morgan and Principal have either introduced or have increased exit loads ranging between 0.15 – 0.5% on early exits on fixed income funds.

Study the type of debt fund you have. It is likely to be primarily based on the time duration where you have ultra short term funds, short term funds, income funds (for long duration) or the dynamic bond funds, which can go across duration. While investment in equities are advisable for the long time, you must choose investment in debt funds as per the time horizon and underlying objective.

Funds holding a portfolio of bonds with longer maturities see more price fluctuations due to the change in interest rates with the underlying portfolio suffering the most on mark-to-market valuation. This can be seen in the performance of debt funds wherein long-term debt and gilt funds have shown relative underperformance compared with their short-term counterparts.

The rising interest rates augured well for debt investments that offered fixed maturities, considering these are held until maturity and do not bear any mark-to-market risk. That was the reason fixed maturity plans have been in the reckoning of late due to their investment in fixed-income instruments such as certificates of deposit, the rate on which has moved up to almost 10% from 5% last year. Since these funds invest into deposits maturing in line with the investment horizon of the fund, there is no mark-to-market risk involved.

We can expect the benchmark rates to gradually start coming down, thus the market rates will also come down. That will have an impact more on the short term interest rates than the long term rates. So the strategy should be to stay invested, have a short term kind of scheme maturing in the next two to three years rather than a long term scheme of say 6-10 years.

3.. Equity Market

Indian markets have performed badly compared to its peer in Asia and emerging markets. S&P and Fitch have cut down Indian ratings and GDP estimates, inflation is still a concern and IIP data is disappointing, FY11-12 Q4 results were moderate with continuing weak margins. Rupee has depreciated and FIIs have sold heavily. The elections in Greece came in favour of the markets, but the renewed fears over Spain’s increasing borrowing costs due to the rise in the bond yield is again keeping the markets worried

Looking at sectors, banks are under pressure because of falttish rate environment, steady margins, poor asset quality and rising credit costs. IT industry though looking positive in long term is unlikely to spark in 2012. Though unlikely, if the inflation falls at a fast rate and rates are lowered than expected this year, it might have a positive impact on infrastructure, auto and construction sector.

All these will ensure that the markets will remain volatile for some time now. However, there is silver lining here. The current market conditions give ample opportunity to stack up bluechip companies with strong fundamentals and attractive valuations. Do not look at timing the market. Start picking up stocks value at current levels. Sell those stocks which has management issues or where the competition, with in the industry, is performing well but this particular company has continuing difficulty in keeping up with the competition.

4.. Bank FD and other Fixed Income

Due to high inflation real rate of return in some cases was either very poor or was in negative. The steady increase of rates has been halted. We might see some rate cut in the coming months, if not sooner as indicated by the RBI. Thus stay invested if you have invested at the higher rates because you might not get these rates soon.

If you have no exposure to these instruments, start looking for the best rates available and park some funds for longer duration. Avoid callable bonds and NCDs as once interest rates fall, they wont give you the returns that you are enjoying today. Also avoid floating rate bonds where again the interest rates are likely to come down in the coming year.

5.. Unit Linked Insurance policies (ULIP)

Insurance are for a long time. Even though your agent told you about how you can withdraw your money in 3 to 5 years, it is never advisable. Most ULIPs have a load structure where charges are deducted in the first 2-3 years of the policy and it takes a little while before you can see the value of your fund going up. Treat these ULIPs as your friend for life. Keep investing for the entire period with an objective of using this money as Retirement Fund and marriage or education fund for your children. Besides the insurance cover that you are getting. But do not withdraw or surrender your policy, even if the agent ask you to do so repeatedly. If your policy has a feature of systematic transfer plan (STP), then utilize the same.

If you are thinking of buying a fresh ULIP for you or your kid, then look at online term plans. They come real cheap and get you bigger insurance cover at a low price, while invest the amount systematically into other various asset class to build up a target corpus.

6.. Precious Metal

Trading at almost Rs. 30,400 per 10 gm, Gold has broken its previous records in the Indian Market. After hitting Rs. 75,000, silver has been trading in the range of Rs. 53,000 to Rs. 55,000 for quiet some time now. European crisis, choppy market and depreciating rupee has made investors run towards Gold. It is a good asset class, especially when there are uncertainties in the market.

It is advisable that you continue holding on to Gold and Silver. But in case you wish to invest further into it than invest only if you are looking at only one year horizon or if you do not have sufficient investments in the Gold. Silver has always been volatile, but is looking attractive at these levels. Invest in Silver only if you can withstand the volatility and stay invested for a long time. If you are concerned about the purity, ease of buying/selling and safety of holding gold in physical form then you can look at investment in the e-gold from National Spot Exchange (NSEL) or a Gold ETF.

7.. Real Estate

You have been waiting for the loan rates to come down before you invest in the property, whereas property prices at most places are steadily moving upward. If you have been delaying your decision than it was of worth no use.

Invest in property before it reaches out of your current budget. There will never be a right time or the best price. Even at today’s rate you will find that you had invested at a good value. The properties prices are unlikely to come down, unless we see real worse economic situation. Look at smaller or even studio apartments if you have budget constraints. Go for home loan. But see your monthly income and expenses before deciding on your loan amount. It must not put unnecessary burden on you. Loan will save you taxes on principal as well as on interest payment. Look at the builders and projects which have the track record of delivering in promised time.

8.. Loans

If you have surplus or can manage for a little while than go for repayment of loan. Even partial repayment of loan shall do. After a little while you will find the RBI softening the rates. Consider migrating to the lender who will offer you loans at lower rate at that time. If you are buying a car, evaluate leasing as an alternate option. Though the decision to lease or buy will always depend on your personal circumstances. If your objective is to get rid of annoying little car payments and you actually want to take ownership, buying a car may be the best option. However, if your goal is to have a new car every few years and also minimize your monthly costs, then leasing a car may be a good option.

Lessons to be learnt

Firstly never panic. And must not take any decision in haste. Study your investments well before signing on the dotted lines. Understand the risks associated with the asset class. There must also be enough flexibility so as to move in and out of the same, in case you have to. Have some buffer, especially if the goals are short term.

Always have a balanced portfolio. Look at your risk appetite. And spread your risk over various class of assets. Even in the same asset class never put your entire eggs in one basket. Revisit your portfolio at regular intervals. Exit those investments that have gone wrong or are not in sync with market or your goals. For example, if you are invested in equities and have a long term goal, stay invested even if the markets are down for some time, subject to the companies you are invested in are fundamentally strong. Rather than selling or waiting for markets to move up, invest when the markets are down.

Encash the opportunities. Explore the cheaper or better options available and migrate from the existing ones. Like if the FD rates are high switch from the older ones. And when rates soften, migrate from the higher loans.

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TCS limit raised for cash purchase of Jewelery

The Government has raised the threshold limit for Tax collection at source (TCS) on cash purchases of jewelry from Rs. 200,000 that was proposed in budget 2012 to Rs. 500,000 now. In order to curb the black money from the Gold and jewelry market, the Finance Minister had earlier proposed TCS by the seller at the rate of 1% of the sale amount of all the cash transactions exceeding Rs. 2,00,000 from the buyer .

However, the threshold limit for cash purchase on Bullion shall be Rs. 2,00,000. Bullion for this purpose will not include any coin or any other article weighing 10 gm or less.

The Government has also decided to roll back the earlier proposed 1% excise duty on unbranded jewelery and 1% that is already imposed on branded jewelry with effect from March 17, 2012, the day the proposal was made in the Indian Budget.

The Government has also left unchanged a proposal to double the import tax on gold from 2% to 4%.

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Mistakes we should not make with our money

There are some financial mistakes we should not make, especially during these uncertain times. Some of the mistakes can cost a lot of damage, immediately and over a period of time on your financial health.

Holding back your investment decisions
Dont wait till tomorrow to start investing. In fact this is perfect time to start investing gradually. With whatever money you have. Best is to start with a SIP (Systematic Investment Plan).
Stock markets have corrected nearly 20% from its peak. And bank fixed Deposit (FD) interest rates are on average 9.5% to 10%. So pick your stock, best mutual fund and other financial instruments as per your risk appetite, time frame and investment objective.
Start investing for future. If you do not do it now, the best times will run out soon.

Spending more than you earn
So you cant avoid the temptation of upto 50% off. It does make sense if you prepone your purchases and save some money during the festive discount period. But what if you buy stuff which you actually do not NEED, and empty your pocket.
Most of our financial problems start when you spend more than you earn. You become an impulsive buyer and start spending on just about everything by taking loans.

Have a budget for almost everything. And keep a track on what you spend, and what you earn, so that you get a fair understanding on what you have and where your money is going.
Do not avoid taking tough decisions. If you have to cut down on some expenses this month because you overshot your budget last month, Do So.

Defaulting on loans
Do not default on your loans. Defaulting on loans will impact your credit rating. And it will impact your future credit standing for taking loans.
And if you default on your credit cards, you will not only downgrade your credit rating, but you might also be charged upto 38% annually on your outstanding amounts on credit card. Some times it is not so easy to discuss discuss with your spouse on the necessity of cutting down on expenses. But you have to do it. For a better tomorrow for both of you.

Feeling Poor
Stop feeling poor or sorry about yourself. If you feel that the world is conspiring to make you poor, it is likely to come true. Start thinking good about your money, finances and future. The tomorrow will be much better than today.

And lastly do not forget to review your financial standing on a regular basis. If not more, than atleast once a year. You may find a shift in your risk profile, some avoidable expenses and better investment opportunities.

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