Sale of Fidelity Mutual Fund Indian Business: Investor should Stay or Exit......big question ?

 

Two days back we have came to know the big mutual fund industry news that Fidelity mutual fund has sold their indian business to L&T Finance. It is a major event in  mutual fund industry.With over 8,000 crore in assets and 19 lakh customer accounts in MF business , The Fidelity International has sold its stake in FIL Fund Management (the asset management company) to L&T Mutual Fund whose sponsor is L&T Finance.  In 2005 Fidelity had launched its first equity fund in India. After seven years business in India, the fund house has decided to quits in Indian business.

So now the big question in investor’s mind what should do now at this point whether quit fund or not . For this we are trying to analyse the situation here. First of all we should be very clear that AMC has sold the stake of AMC (Asset Management Company) only and there are nothing to worry for investor. The investor’s money is in the mutual fund and is secure with the custodians.

The NAV of the funds will continue to be valued based on the market price of what is in the portfolio. Now for L&T Mutual Fund, acquiring Fidelity’s mutual fund business is beneficial and now the group has become large and multi-faceted in the financial services business. At present the L&T fund house merely 200 crore of equity funds. Now the question is whether L&T Mutual Fund will deliver performance on the schemes it has acquired from Fidelity MF.

There are few reasons to be think on this moment. The first one is the fund house which are currently not in the very comfortable position in MF industry but its debt funds are doing well. Second, the equity fund managers of Fidelity will handover the management to L&T’s fund management team within some period as per deal. Investors do not know if the new team will do better, or fail to live up to the expectations. And the last point is those active investors who do not like the uncertainty may leave at this point. It would be tough challange for fund house to retain these investors. Those investors who do not like the change have the option to quit, without paying exit load. The sale transaction is now pending the Sebi approval after which investors in Fidelity’s schemes will be given a 30-day notice to quit if they so wish. Those who do not exercise the option will move to the new management. Investors in Fidelity Tax Saver, where a period of three years is not over since investing, will not be able to exit due to the mandatory lock-in. They will move into the L&T Tax Saving Fund by default.

The investor would be informed by L&T Mutual Fund with the detail indicate which fund will be merged into which one, what the new names will be, and which funds may be closed. Fidelity’s investor should wait for that communication by L&T fund house before deciding on the exit option. There may be errors in fund selection when investors exit and enter other funds .

So don’t be panic and wait for the next communication from L&T fund house.

Dear reader please do send your feedback and ask any query if you have.

Regards,

Arvind Trivedi

What is this GAAR and what is the implication of this for our share market?

Day before yesterday Indian share market had given thumbs down to GAAR by negative closing and  yesterday after gettins assurance from Finance Minister for Modify GAAR Markekt had given positive close.  For many of us it is new term and want to know more about it.

The GAAR stands for General Anti Avoidance Rule. That GAAR was mentioned by the finance minister a year back during budget as a part of the Direct Tax Code. Before talking about GAAR there are one term which is known as P-notes (Participatory notes) we should understand first.

P-notes are financial instruments used by investors or hedge funds that are not registered with SEBI to invest in Indian securities. There are no need to fulfill KYC (Know Your Client) for investors who invest through P-notes. By avoiding KYC norms one can invest whatever amount by keeping his own identity hidden.

In Jan 2008 when SEBI had tighten the norms for P-notes our market tasted lower circuit very next day. So the P-notes issue is very crucial for our market and govt. also. The first one is first is a taxation regulation that will make investors pay tax who otherwise legally avoid it.

This year’s budget made it clear that it will be applicable from 1 April 2012. So under GAAR, the evenue authorities (IT Dept) will get to tax transactions or arrangements which were conducted or set up just to get tax benefits.

There is confusion in the market whether the gains from these instruments will also be taxed. So routing transactions through outside from India (Most P-note transaction done through Mauritius) when there is no substantial purpose to route it from there other than achieving the tax benefit will not be allowed.

Sections 9 and 95 of the new Finance Bill (under which GAAR was introduced) says clearly that any transfer of shares in India which gives rise to income anywhere else will be taxable here. These sections will clearly have to be amended if cash investments of P-notes routed through tax havens like Mauritius will have to be exempted from tax.

According to an one broking house, P notes will be facing indirect taxes only. Direct taxation is not possible if the note or the contract is carefully worded because shares or voting rights are not transferred through these. The nature of transaction is a contract and does not transfer share or interest, that Section 9 talks about.

Taxes will also be applicable to indirect transfer, which alludes to the recent Vodafone case where the Supreme Court, much to the shock of tax authorities in India, had ruled against levying tax on transactions fully carried out abroad. The main contradiction in Section 9, therefore, lies with the retrospective effect of the tax which might go back even to 50 years (1962 to be precise, when India’s existing tax code got enacted). This would retrospectively tax all cross-border deals the government might fix upon and gives a wrong signal to foreign investors.

In case of companies routing investments through Mauritius, under the new law, the onus lies on the taxpayer to prove that the transaction or the arrangement of any transaction did not have tax benefit as the main purpose. It might be difficult for most Indian corporate entities to prove they have any other sound reasons for having an establishment in Mauritius.

The scope of the Indian GAAR is very wide as it seeks to cover within its ambit nearly all the arrangements (the term ‘arrangement’ is very widely defined to cover almost every transaction, scheme, understanding, etc.) and therefore could be difficult to favour the taxpayer in any way.”

Once GAAR is invoked, a commissioner of income tax (CIT) has been entrusted with enormous powers to settle the issue and revoke tax benefits which might have gone to the taxpayer.

In such a situation, there are options to move establishments to countries like Singapore, though that also includes additional costs. P-note issuers like CLSA have halted issuing such instruments for now till there is more clarity on the issue. They have made it clear that taxes will be passed on to clients who are ultimate gainers of the transaction. However, they say, there is no need for panic selling if one is fundamentally bullish on India.

But it is definitely easier for companies like CLSA to shift clients from Mauritius to say, Singapore, where they already have a formidable base. But entities who will not be able to justify a base in Mauritius for reasons other than tax planning will be in deep trouble.

There could be immediate volatility in the market mainly in futures and options section, but ultimately investors might just begin to price in a tax cost when they invest in India.

Dear friends above article about GAAR based on market news sources which available to me please verify with your own sources and if you have any query and want more clarity feel free to ask……I would appreciate your valuable feedback.

Importance of Financial Planning for Individual

After presenting the budget for the country by our finance minister, Have you seriously ever think about to make a budget for yourself? When I asked this question to some of my friend ,I have got many type of reaction for this . For someone it is balance between income and expenses and for the other one it is nothing but a term created by the new breed financial planner.

In fact it is the first step towards drawing up a financial plan for an individual. Most of the time youngster don’t take it seriously when we talk about budget to them. In contrast those who are near their retirement take it very serious.

It is the tool to identify the financial position of the person with the help of details provide by the person about their income, expenses, financial commitment. After income and expenses detail if you have surplus than you can make a financial plan. If there are no surplus you cannot plan for future goal .

The whole idea behind the budget that one should be aware of his/her income and expenditure. it will give you a idea about saving, investment and so on. One should not stop after asses the income and expenses.  The next most important thing to recognize the future goals and make some provisions to achieve those goal at specific time.

When we talk about budget most of person ask the question about certain lifestyle. Is a certain lifestyle the only thing we need to achieve? The answer is each one of us needs to decide one thing : Are we making short term gains for long terms pain!

Need Vs Desire

Before buy a product or service ask yourself the one question : Is this a need or desire? If this is a desire, than ask am I buying it at cost of a need. For example Buying a mobile phone could be a need but buying a expensive handset with so many features which I barely use could be a term as a desire. So every time I pay cash or swipe my card the one question I need to ask myself is : ‘Do I need it?’

Asset Vs liability

This definition needs to be very clear to everyone. An asset is one which generates further income.If I buy a house (for self residence ) but in realty it is not asset. If tomorrow house prices of the property goes up how do I benefit ? I still have to stay in the same place and if I want to sell it and shift,, in most of the case, the other place will be equally expensive or may be more.

At the end one thing is very clear one should always focus about his/her future goal and separate needs from desires for the successful financial planning. To make budget is the first and important step to make financial plan.

Dear readers , give your feedback about above article and feel free to ask any query or question regarding investment and financial planning.

Good News for Investor after the hike in service tax and duties after Budget

Good News for Investor after the hike in service tax and duties after Budget

After Budget session with hike in duties , Service tax & provident fund rate cut there is some good news for individuals citizen.The government is raising interest rate on small savings schemes such as National Savings Certificate and post office deposits by 20-50 basis points .

The move to raise small savings rates comes barely a fortnight after the Employees Provident Fund Organization (EPFO) slashed the annual return from 9.5% last year to 8.25% for the current financial year. In the Budget, finance minister decided to increase the excise duty and service tax rates from 10% to 12% which will put a burden of Rs 35,000 crore on common man.However there are some concessions by way of an increase in exemption limit for direct tax.

The new rates will, however, be applicable on investments that you make from April 1 , 2012.
As a result, NSC and public provident fund (PPF), will fetch for you 8.8-8.9% instead of 8.6% a year. Shorter tenure deposits like term deposits in post offices are expected to fetch you more than longer tenure products such as PPF or the 10-year NSC. But aving accounts in post offices will not see any change as the 4% return is most banks pay today.

Today most of the individual assume that Bank deposits however, look more attractive as they offer 9-10% return. But a scheme like PPF, which has a minimum term of 15 years, comes with additional tax sops. Not only is it part of the 80C benefits which entitles tax payers to get a concession of up to Rs 1 lakh a year, but the interest earned on the deposits is also taxfree. So, at the revised rates, the actual return for someone in the 30% tax bracket will work out to 12%. 

Ther are one more point that the rate of return on small savings schemes that will be notified by finance ministry and will be for the full financial year, while bank deposit rates are expected to come down with the Reserve Bank of India widely assumed to begin the rate cut cycle by Many experts. Even before lending rates come down, banks will start pruning returns on deposits to lower their cost of funds.

Dear reader send us your valuable feedback on this article and feel good ask any query.

Warm Regards,

Arvind Trivedi


 
 
 

Impact of Service Tax and Excise duty hike on Common man in Budget 2012-13 :

Now the budget has been produced in Parliament by our Finance Minister for FY 2012-13. Our FM has tried his best to control the Fiscal Deficit . He has also proposed the increase in Excise and Service Tax and we all are keen to know that how and how much it will impact to the individual and industry. Here I am trying to analyse that impact of tax increase :

First of all As per tax point of view any activity for consideration called " Service" and almost all services except some 17 Services listed on negative list are taxable.

Service tax and excise duty have been hiked by 2% across all categories. The minimum individual tax payer exemption limit has been increased from Rs 1.8 lakh to 2.0 lakh result only 2000 Rs gain. At present for example suppose spending on goods and services per month Rs 30k. The increase in excise duty on goods will indirectly increase in value added tax (VAT )  on goods (already paid increased excise duty) by 0.26%.
Hence the minimum additional tax incurred by the consumer on account of service and excise tax would be about . 15,300 as against the increase in the disposable income of . 2,000 only !

If you are in higher tax bracat say 20 lakh per annum, your disposable income will go up by . 22,600 and the  impact of service tax and excise duty hike on you could be neutral.

Despite of tax exemption for Bollywood and STT ( Security Transaction Tax) cut on delivery based volume , we should not forget  about 12.36 % service tax which every individual tax payer has to paid .

There are some confusions, which will be rectified before the Budget is passed. The provision for taxation of bundled services states that in case such services are not normally bundled, the highest tax rate shall apply. If they are “naturally bundled in the course of business”, the nature of services shall be determined based on the service that gives them the essential characteristics. The question is which services are naturally bundled and which one of them gives it essential characteristics shall give rise to much more confusion.

It is very clear to all of us that Indian government avoided bold reforms in its annual Budget on Friday, opting for cautious steps for growth and  anti-deficit measures, including an increase in services and excise taxes. The government set a fiscal deficit target of 5.1% of GDP in 2012-13 FY.

From the last budget  experince we all can clear guess whether the govt would get sucess to achieve the fiscal deficit target 5.1 % or not.

Overall, however, the government and policymakers have done a reasonable job on the reform front and this budget has  nothing for common man .
Any way we all have to live with it.

Dear readers , please send your feedback and query I would really appreciate and welcome the same

Regards :

Arvind Trivedi 

Some Main point from budget

New Tax Slabs: The Finance minister has increased the tax slabs and given relief to the common man. Especially for the people in the below 10 lakh slab. Greater news for those earning between 8 Lakh and 10 lakh, they move from a slab of 30% to a new slab of 20%.
The minimum tax slab has been increased from Rs.180000/- to Rs. 200000/-.
For people whose income level is between Rs. 200000 to Rs. 500000, the new tax rate is 10%, for income from Rs. 500000 to Rs. 1000000 the tax rate will be 20% and for income of Rs.1000000 and above the tax rate is 30 %.
The homeowners of apartments can enjoy tax exemption of Rs. 5000/. Spent on maintenance.  This exemption level has been increased from Rs.3000/- to Rs. 5000/-.

The Capital Gains Tax will not be applicable for people who use the amount generated from the sale of their houses as an equity investment in small and medium businesses.
Exemption permitted upto Rs 5000/- for expenses incurred on Preventive Health Check up

Exemption of Rs 10000 on interest earned from Savings Bank depsosits for people with income upto Rs 5 Lakh

Invest in Equity and get tax exemption -
Rajiv Gandhi Equity Saving Scheme will get income tax deduction. This will be applicable only to the New Retail Investors investing directly into equity up to Rs. 50000/, with a lock in period of three years.

The annual income of the investor should be less than Rs. 1000000/-.  Changes have been made in the IPO guidelines in order to ensure the participation from small towns.

Main points for Business- Service tax up from 10% to 12 %

Agriculture: Agriculture will continue to be the priority Sector. The FM has announced 18% increase in outlay for agriculture. The Agri credit is up by one lakh to Rs.5.75 crore. The food prices are expected to ease over a long term.

Small Businesses likely to receive benefits: Entrepreneurs, especially the SMB sectors who have started SBM exchanges in Mumbai are to be benefited. The FM has forced the government to source up to 20% of its purchases from micro and small industries. The small business units are expected to be benefited out of this.

More number of Super malls to come up: The FM has said that multi-brand retail will be supported so we can expect more number of Malls and Super Malls in the country.

Power, Housing, and Road Construction: External Commercial Borrowing to be allowed for Power, Housing, and Road Constructions. This will improve the rationalization of these Industries.

Dear friends ,
The Govt annual budget has to come on this16th March . Lets learn about some basic key terms which used in every year in budget. The govt' annual budget is much more like our household budget the only difference is only jargon .

The budget mainly divided in three parts - Consolidated Fund , Contingency Fund and Public Account .
Each fund has a statement of receipts and expenditure.

CONSOLIDATED FUND : This fund is main fund of the govt's finances . It has all revenues, money
                                               borrowed , receipts from loans and all  govt expenditure. All expenditure
                                              made after the Parliament's nod .
     
CONTINGENCY FUND : This fund is for all unforseen and urgent  expenditure which is at the disposal of
                                            the President. The currrent fund value is Rs 500 cr.

PUBLIC ACCOUNT       : All money in this fund belongs to others like Public Provident Fund . The govt
                                           is only working as a banker of this fund.



Today I stop here will be soon with you .....

Hi Friends , This is my first blog....

This is Arvind Trivedi recently done CFP ( Certified Financial Planner ). Today the financial & investment product sold in the market due to year end tax saving activity without much knowledge and inspection of the product. Most of the time we even don't understand the product why we are buying and what is the moto behind particular product purchase.  My effort to create awarness among the people and creat financial  product awareness and investment objective.  Please do ask any query and doubt frankly i will try my best to get appropriate solution for each query and also get the benefit of your people's knowledge.

I will be soon with you some thoughts........