Asset allocation : Importance in financial planning

Asset Allocation : How much Important..?

This word is very familiar in today’s investment world but often the investor or general public confuse or not very clear about it. The main purpose of asset allocation is to minimize the risk involved in achieving a target return or maximize returns with managing risk in prudent way. Asset allocation works on a very famous proverb “Don’t put all your eggs in one basket”. It also play very vital role in any comprehensive financial planning.

We have mainly these types of investment assets:

• Cash
• Equity
• Precious Metal
• Real Estate
• Bonds

Among many of the the asset classes, mutual fund provide the well diversification and professional management. Asset allocation through mutual funds gives you the opportunity to get maximum benefit through diversification and reduce overall portfolio risk. Mutual funds provide better asset allocation in cash, equity and bonds asset class.

Before making any strategy to achieve long term financial goals through asset allocation there are some important points given:

• Asset allocation helps you to make fine balance between return and potential risk. It provides also a disciplined investment plan.

• It also protects your portfolio against declining market through rebalancing and diversification.

• The most important thing is that your personal asset allocation strategy may not similar than others. The financial goal and risk appetite different for person to person. It based on mainly your age, risk tolerance level, liquidity needs and time horizon.

• Please remember that asset allocation does not guarantee the best return but it offers the balanced return with managing the risk which is good enough to take care of your all future financial needs.

• The main aim of asset allocation or financial planning is to achieve your future financial goal and peace of mind. It is not much important that gain a maximum return from the investment but to achieve a peace of mind with achieve a financial goal through risk management.

For more detail and any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Newly Launched Inflation Indexed Bonds by RBI

Inflation Index Bonds (IINS-C)

As per promised in the Union Budget 2013-14, RBI has launched Inflation Indexed National Securities – Cumulative (IINS-C) in this month.. The total return on this fund would be depends on fixed rate (1.5%) and inflation rate based on Consumer Price Index (CPI). Interest rate will be compounded half yearly and only paid at the time of maturity.

The maturity period of this fund is 10 year. The minimum investment allowed in this fund is Rs 5,000 and the maximum investment allowed up to Rs 5 Lakh. The prime mandate of these type of bond are to provide the assurance to the investor to beat the inflation.

Most of investors want to know that which is much better option between bank fixed deposit and inflation indexed bond. To understand it better, here we are going to compare tax liability and penalty if we withdraw fund premature.

Premature Withdrawal:

In case of bank fixed deposit, if you redeem before the maturity, there is penalty of 1% on whole accrued interest amount, it means you will get 1% less interest rate from the rate whatever bank offer you at the time of deposit.

In case of inflation index bond (IINS-C), there would be deduction of 50% of last coupon (interest) rate as penalty, if withdraw it premature. During the time of high inflation, IINS-C will give substantially high return than bank fixed deposit. The return on these bonds would be volatile compare with bank FD which gives fix rate of return.

Inflation index bond allow early withdrawal after one year for senior citizen (above 65 year age) and three year for others.

Comparison for Taxation:

Tax will be levied on interest as per tax slab in both cases. In case of bank fix deposit, you pay tax on each financial year on the accrued interest which is only available at the time of maturity.

In case of IINS-C, investor can pay tax in each financial year or pay once at the time of maturity. Income tax department provide both options in accrual products but it should be uniform, not financial instrument wise.

If you do not need interval income and want  to beat inflation in the long run without taking any risk then these bonds may prove for you good investment option.

It is the vast subjective subject. For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Tax deduction in Real Estate

Tax saving opportunities in real estate

Real Estate, it is the very common and traditional investment avenue for the investor. In last 4-5 year, it has performed fairly well against most of asset class. Most of us believe that it is safe and quick return generating asset. In realty, before any investment you should be aware of your tax benefit and tax liability both.

For example, if an individual sell the house within 3 year from purchase, the earlier claimed tax benefit completely reverse and you have to pay the short term capital gain tax as per your income tax slab. So in case if you sell property and think of 50% gain then kindly consider the tax liability also before selling your property. It is applicable to all type of properties whether self occupied property or let out property (LOP) or deemed let out property (DLOP). Let out property (LOP) means that property from which you are earning some income and DLOP means that property has not yet been let out for rent. These tax rules are not applicable on farm house as it is considered as an agriculture land.

If you have property from which you are getting rent income is consider as LOP. For calculate the tax liability, we have to first calculate the net annual value of the property. The following steps help you to calculate the net annual value (NAV) of the property:

Step 1: Compare the municipal value and fair rent. Fair rent can be obtain

            from the rent of properties under similar category. The higher value

            can be used but it should not exceed than standard rent. Standard

            rent fixed as per guideline of the Rent Control Act

Step 2: Actual rent value received from property

Step 3: Choose the higher value from the above 2 steps

Step 4: Calculate rent amount for those months when property was not

            Rented

Step 5: Calculate the difference of the value of step 3 and step 4. It is your

            Gross Annual Value (GAV).

Step 6: We will get the Net Annual Value (NAV), by deducting the paid and

            due municipal taxes from GAV.

In case of multiple properties, the highest GAV value property is considered as self occupied property.

Available tax deduction:

• The principal amount you pay for home loan can be also claimed under section 80(c) within the limit of Rs 1 lakh.

• Under Section 24(a), taxpayer can directly claim the 30% of NAV of the property as a tax deduction for maintenance of the property regardless whether the amount has been spend or not for the maintenance of property. It can be claim for LOP and DLOP property not for self occupied property.

• Under Section 24(b) interest paid for borrowed home loan, taxpayer can claim entire interest in case of LOP and DLOP property. In case of self occupied property there is limit of Rs 1,50,000 for tax deduction interest paid for borrowed home loan. This deduction can be claimed after complete construction of the property.

It is the vast subjective subject. For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Are  you considering guaranteed plan...? Think again!!!

After ULIP out of season, equity market’s return flat the insurer and mutual fund using “Guranteed” word to attract business. I am sure that most of you very often interested with these schemes for shake of your protecting your capital. After sometime you realize that your choice was wrong. I always recommend to all investors that please read whole offer document, search on sites or take advice from any good financial planner before any investment. No matter what is the investment amount.  After all it is your hard earned money so be prudent at the time of investment.

Guarantee is a very powerful world in any sales drive. Insurance companies offer guaranteed payout and insurance cover both to push the sales and get the benefit of investor’s mindset as these products are easily marketable with less effort. Before caught in the sales pitch you should enquire about the return of investment.

It has been very clear now after review of many these types of guaranteed insurance plan often fail to deliver the return even equal to bank fix deposit in the long run. I am not mentioning here the particular name of these types of plan as I don’t want to create any misconception or controversy but you will also believe after the decoding these plans carefully.

Guaranteed income plans are non- participating traditional plan and never disclose the investment costs and return. For example one plan says in the fine print that “ 8 % of the sum assured as payback guaranteed”. Most of the time investor think that he will get return of 8 % on the investment whereas the fine print means that there is guaranteed 8% payout of the sum assured. After many such plan’s analysis the actual net rate of return is 4%.

4% return is not great return in the 10-15 years. If you still happy with these types of return choice is yours.

The cost of guarantee is so huge and opaque that it is very difficult to arrive a net return on the investment. You are not getting only lower return you are also eroding your capital against inflation. According to me, you should concentrate on generating value from investment in the long run.

If you are conservative investor, Public Provident Fund (PPF) is good option for high tax bracket. Lower tax bracket investor may go with bank fix deposit also.

If you have some risk taking capacity you can make good capital appreciation with tax saving. ELSS mutual fund is the best option for long term investment as it offer capital appreciation with tax saving.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Financial Planning : Is it for you ?

Financial Planning : Is it relevant for you..?

Whenever I conduct workshop on financial planning or meet the client. It is very common doubt inside the client’s mind whether the financial planning is so important for them or not. In our country, we plan everything but not our finance. We are the largest saver country in the world. In fact we have  great saver mindset but most of us don’t understand or underestimate the need of financial planning. A common myth exist among the investor that it is only useful for only rich and elite class person. Today we will try to find out for whom the financial planning is important.

• If you don’t know where is your income going every month and always wonder about your expenses then you definitely need to make a budget for your income and expenditure. It is very basic and vital setp towards making a financial plan. Impulsive buying and lack of budget planning may be proved very costly for your long term future goal.

• If you are in the trap of debt and your liability is increasing due to loan interest amount you pay then seriously you should make a proper plan to get out from various liabilities. For the blind race to lead much comfort life style, you often use the facility of credit card, personal loan and bank overdraft facility. These all loans lead you towards a serious financial mess. A financial plan will help you to come out from financial mess.

• If your investments are scattered and you are not sure that whether it is right investment or wrong then financial planning for you. Many times we do investment on the recommendations from agents, relatives and friends without knowing the product’s risk and return ratio. Keep in mind each investments have always some degree of risk. A financial plan provides you consolidated investment statement and you can analyze it time to time in very easy manner.

• If you have a multiple life insurance policies and you are paying a hefty premium for those policies without knowing the expected return and sum assured then you must need of financial plan. Most of the people are underinsured in our country and people must know the about adequate insurance amount what they need. It is very important to know that how much life and medical cover you need. A financial planner help you to determine all these need based on your provided information. Insurance also is the vital part of any financial plan.

• If your major investment in the particular asset class and you are not sure whether it can help you to achieve your particular goal then you need a financial planner who help you to achieve your future financial goal through diversified investment portfolio with proper asset allocation. Asset allocation may be differ for person to person and you need to know which type of asset allocation you required to achieve your financial goal.

• If you don’t have habit to regular investing then you must need a financial plan. In every success goal achieving story discipline and determination is the key element. By create a financial plan with the help of expert and follow that plan religiously is very crucial to achieve your long, medium and short term goals.

Now after reading the above mentioned pointes it has become clear that financial plan is like a road map to achieve your dreams and desires to lead a happy and prosperous life. However, many of you have not any idea how to invest and where to invest or you may not have sufficient time to make financial plan and track your investment portfolio then you should must hire a expert planner lead to stress free life.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Bitcoins - Gaining momentum among people

Do you know about Bitcoins ?

You may have read or hear about bitcoin mining. It is very buzzing and common word in today’s world. Now a days, it has become very growing competitive business. Some people consider it as a currency. Recently the US investigation agency FBI cracked down and found an online exchange using bitcoin for the trading of illegal trades.

Bitcoin is not real money. It is an online currency (virtual currency) that can be exchanged for goods and services like real currency. It is not legal in India. It came into existence in 2009. It is not regulated by any authority or regulator. It has no serial no. as like other currency have. So we cannot trace the buyer or seller through it.

Other currency is backed by gold, silver other metal or central bank. It is generated by a process in your computer called ‘mining’. A little app sits on your computer creates bitcoin very slowly in exchange for providing the computational power to process transaction. It is said that the system will not create more than 21 million bitcoins. This concept attract the people to join early to make the most of this opportunity.

There is decent incentive for small businesses to accept bitcoins- It is free to use and without any transaction fee. You can buy services of web designer, PC games, homemade ornament etc.

According to a report, in India there are about 50,000 Bitcoin user. The value of Bitcoin has increased surprisingly over the one year. At the beginning of this year the value of Bitcoin was just 13$ and now it is around 900$. According to reports, there are about 11 millions coins now. The key exchange of Bitcoins is Tokyo based Mt Gox exchange.

India’s first Bitcoin’s conference held in Banglore on 14^th & 15^th December. This is the second global conference in Asia on Bitcoins. The conference will be attended by RBI (Reserve Bank of India) and SBI (State Bank of India) also. CoinMonk named organization is trying to spread information about Bitcoins in India. It is working towards to regulate and recognize bitcoins in India.

However, Bitcoin is very far from the getting status of real currency but we cannot ignore it for future. It has potential to get the wide acceptance across the world.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Strict new norm for claiming HRA

Strict Rule for claiming HRA Exemption

A few days back, the income tax department has tightened the norms for claiming tax exemption for house rent allowance (HRA). HRA is the payment given by an employer to an employee for to meet the requirement of house rent.

Now, it has become mandatory to submit the PAN (Permanent Account Number) of the landlord to the employer if annual rent paid by employee more than Rs. 1 Lakh per annum. The central government has lowered the exemption limit for reporting the rent. Earlier, taxpayer had to report the PAN of the landlord, if the monthly rent more than Ra 15,000 or Rs 1.8 lakh per annum.

If the landlord does not have a PAN, the assessee has to submit a declaration to this effect along with name and address of the landlord. Even if an employee pays rent below Rs 8,333 per month, he/she has to produce the rent receipts availing the rent receipts availing deduction under HRA. However, for thos emplyee who are drawing HRA up to Rs 3,000 per month will now be exempted from producing rent receipt. The new norm has come into effect from the financial year 2013-14 or Assessment Year 2014-15.

The new rule is aimed at people claiming HRA exemption for living in their own house and claim HRA exemption. HRA granted to an employee who is residing in a house/flat owned by him is not exempt from income-tax. 

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Insurance Sector Update - November 2013

Insurance Update – November, 2013

I am starting for now onward to simple update on insurance industry time to time. Insurance is very vital and critical part of any financial plan. It is our duty as an advisor and planner to inform our readers to update about this industry. A lot of regulatory activity is going on and companies come with new customized product. Every investor must know about this. Some recent update as given below:

• According to FICCI report, General insurance industry may touch gross written premium (GWP) 3 lakh crore by 2025 with a conservative growth rate of 13% CAGR. According to report that increased health insurance awareness would increase the opportunities in this sector.

• National Disaster Management Authority suggested that insurance should be mandatory for residential properties, malls, theaters, hospitals and hotels. It also be recommended that it should be applies on all urban property tax payers.

• Insurance regulator IRDA has increased investment limit in various category. Now general insurance companies are allowed to invest upto 1.50% or Rs, 3,500 crore in liquid mutual fund. It is for temporary time and can be reversed at a later stage.

• Life insurance companies now can invest upto 5% in FD schemes of promoter group bank. Earlier the limit was 3%. IRDA has also increased  invest limit to invest in information technology and industrial sector from existing 15% to 20%.
• Reliance life insurance has launched policy revival drive. In this campaign lapse policyholder can revive their lapse insurance policy without any penalty and medical tests subject to conditions. This offer will available till 30^th November, 2013 for all reliance insurance products.

• IRDA wants insures to stop giving high incentives to auto dealers. For pushing motor insurance policies sales, insurers offering high incentives to auto dealers and due to this policy holder are paying unreasonable premium.

• IRDS has also proposed to set up insurance clearing house. For smooth functioning of reinsurance and coinsurance business IRDA want to establish “Insurance Clearing House”. It would be promoted by Indian insurers, reinsurers and the authority.

For more detail and any other query related investment, you can contact me through my email

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Equity Investment : When should be start?

Equity Investment : Is it the right time to invest ?

I have seen the equity market has become more volatile in these days. On 31^st October it was on all time high. But honestly saying, most of the investor has missed all this share market all time high rally. I am getting so many calls from the investor about it and the very common query is that is it the right time to enter the equity market. With my experiences and studies, I can say with very confidence that anytime is good for invest in equity market. You only need discipline, long term view, good research and passion. If you have these mentioned things, share market is your cup of tea.

Most of time, I find the investor and all of those has many reservation about the equity market. They have so many reasons to not invest in equity market. Some of reason like that I had invested some money in ABC mutual fund but not got return, I have bought some shares and lost money, Now market will be go down more after that I will think about equity investment and so more reason.

What I have seen all of those person’s argument that they all have missed something before equity investment. They did not know the time horizon, investment risk and product characteristic. They have trusted blindly someone and hoped that their money would be grow many times fold in very short time span like a gamble and smuggling. I request to all of the investors please keep in your mind that investment in equity is not gambling.

Ask yourself first before any investment whether you are trader or investor. The reality is that most of us enter in the market like trader and want to make some quick money. Somewhere I have read a very interesting fact about the sensex. If you have invested in the sensex on every October over the 22 year period 1991 to 2012. You have invested Rs 2.20 lakh total investment over 22 years and the value of this investment was Rs 8,67,310 on 1^st October. I think it is handsome tax free return of 11.30% for anyone without much burden on pocket stress.

The outcome of this study that long term view, regular investment is the key of equity investment. One more interesting fact that we have witnessed all negative event like global recession, asian financial crisis. Harshad Mehta scam, dotcom bust, Ketan Parekh scam, India Pak Kargil war, 9/11 world trade center attack in US, war in Iraq, 2008 global financial crisis, European debt problem and many more. In spite of these events share market has given above mentioned return.

Right now I don’t know honestly where will be the market go ahead in short or medium term exactly but I know this is the right time to start invest if you have not invested in equity market till date. Many people have negative view on India and many people are very optimistic about the Indian market after 2014 general election. Many big broking house like India Infoline has stopped the retail broking and HSBS has also stopped the equity market operation. In my sense, all of these news are making a good ground for strong bull market but when the time will tell you only..!!!

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Close or Open ended Fund, which one is good ?

Close Ended or Open Ended Mutual Fund which one is good?

Often we invest in mutual fund after looking past performance or on any friend’s suggestion. You do not care whether that particular scheme is suitable or not for you. So there is always confusion which scheme is good and which scheme is bad. Every mutual fund scheme are not made for all. You have to choose a good mutual fund according to your need, future goal, investment time horizon and risk profile. There is possibility that one scheme is good for Mr ‘A’ and the same scheme is not good for you. Be careful before investment in any investment instrument.

In mutual fund, you can invest between 1 day to any period based on your need. There are basically two type of mutual fund one is open ended scheme and other is close ended scheme. In open ended scheme you can enter in the scheme and exit from the scheme at your chosen time. Close ended schemes come with some defined lock-in period. You cannot exit from these schemes before lock-in period.

The lock-in period varies from few months to 4 - 5 years according to investment objective of particular scheme. Some investment instrument need time to be able to generate good returns. Closed-ended funds provide proper timeframe to fund manager and investors to cultivate this opportunity.

At current scene, when whole mutual fund industry face redemption pressure from the investor due to turbulent market condition. Since January, Rs 10,694 crore has moved out from equity schemes as outflows. Fund houses come with more close ended schemes. ICICI Prudential, Union KBC, Reliance MF and Axis MF have launched closed-ended equity schemes since last few months. A lock-in product would help fund houses deliver better returns over the longer run, as many mid- and small-cap stocks are trading at cheaper valuations now.

In a closed-end product, investors would remain for the entire duration, whether three or five years, whereas in an open-ended scheme, the investor can move to another one at any point. From investor point of view, the can also the take advantage stay invested in schemes as stock valuation is very cheap in current market.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Few Points for Old Age Financial Freedom

Some Sutra for old age financial freedom

After a long 15 days vacation spending in my native place, I have came back to my daily routine life. My native place is Kanpur. I have also travelled many places in hinterland and met many people. There is some good news that the new or you can say younger generation is very serious about their financial future. The new generation now have hunger for knowledge and growth which is good sign for India. They understand better the difference between saver and investor. In typical saying we Indian are good saver but not good investor but I hope with all my positive energy this saying would change soon. India would be country of great investor. We will deliver more and more Warren Buffet.

In today’s short blog, we will discuss some important aspects for secure future. We often explore personal finance options at later stages of life when we have lost out on the opportunity to make the most of "power of compounding". Personal finance is one area which is almost ignored during our upbringing to become adult. There are few points which we should keep in our mind for secure future planning.

Buy Insurance at early age: Recognize your life and general insurance need. Keep in mind that insurance is not return generating asset, it is only a financial protection for yourself and your dependents against unfortunate emergencies. Be smart and get a good health insurance plan as early as possible.

Set realistic future goal: Apply SMART approach for your future goal. Simple, Measurable, Accurate, Realistic and Time-bound goals can be achieved easily. Don’t ignore inflation, interest rate movement and time horizon.

Start saving early. Make sure you could save upto 25% at your early earning stage as later it is very difficult to save. When you start save early, it make you more confident and happier. You can also gain from “power of compounding” through early saving.

Never blindly copy of others: You financial goals and condition may not be similar to that of your friends. Each person have different need, goal and risk appetite. Analyze your need, goal and risk appetite and invest accordingly

The conclusion of this article is that saving for future is essential part of everyone's life and all you need to do is start today and start small.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Health Insurance Policies

Have you read your health insurance policy carefully..?

As we already know that the health insurance policy is very essential thing for anyone regardless any income group or age group. It is mandatory part of any comprehensive financial planning. Many private and public sector companies provide these types of policies with many attractive benefit and limitation.

Many companies come with these types of policies with restriction like hospital daily room rent and many exclusions like pre existing decease. Now, it has become more important that we should read all the term and conditioned very carefully. At present, there is no free look in facility but IRDA has indicated that they can implement this norm on health insurance policies. As per current scenario, it is only implemented on life insurance policies only.

Please make sure whether lifetime renewability is available or not with the policy. Many medi-claim policy provider often refuse renew the policy after certain age. You can select a plan that offers lifelong renewal because buying insurance at older age becomes a difficult task in case any ailment. There are many decent policies available with lifelong renewal. Few of them as given below:

• Apollo Munich Easy Health Plan
• Apollo Munich Optima Senior
• Star Citizen Red Corpet
• ICICI LombardComplete Health Insurance – iHealth Plan
• Max Bupa Health Assurance
• Religare Mediclaim

You should check premium and benefit and select the plan according to your need.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Inflation would play crucial role in next RBI policy..?

Inflation would play crucial role in next RBI policy..?

There is little respite from rising prices. The wholesale price index, the most widely-watched indicator of inflation in India, rose 6.46 per cent in September from a year earlier. That is sharply higher than August's level of 6.10% and 5.85% in July’s level. It is well above the RBI's comfort level of 5 percent level. The biggest driver of inflation is still food inflation, which accelerated to a three-year high of 18.40  percent in September from 18.8 percent in August  because of supply disruptions due to heavy monsoon and poor storage facilities.

This is the fourth straight month that wholesale inflation has remained above the Reserve Bank of India's comfort zone and could add pressure on it to raise interest rates. A Reuters poll of economists predicted wholesale inflation at 6 percent for the month of September.

The elevated price levels will add more pressure on the Reserve Bank of India – which has clearly signalled that it will target inflation – to raise interest rates even as the economy is growing at its weakest pace in a decade.


At its last policy review on September 20, the RBI's new governor Raghuram Rajan had surprised everyone by increasing its main lending rate by 0.25 percent and clearly signaled that the central bank's focus would be on bringing down inflation. The RBI would be closely watching the September inflation numbers to determine its next rate action. The RBI's next policy review is scheduled for October 29. Economists polled by Reuters have forecast a further 50 basis points of increases in the RBI's main lending rate in six months.

Supply disruptions following heavy rainfall in some parts of the country have driven up food prices, particularly vegetable prices, in recent months. A weak rupee, along with increase in fuel prices, has kept upward pressure on inflation. The consumer inflation data will be released later today evening.

For more detail about any other query related investment, you can contact me through my email.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Shriram Transport Finance Company Limited NCD issue

Today Shriram Transport Finance Company Limited (STFCL) have  launched  its public issue of non-convertible debentures (NCDs). The current issue will get closed in a couple of weeks time on October 21st, if it does not get preclosed this time again or extended by the company beyond this date. The company plans to raise Rs. 500 crore with this issue, including a green-shoe option of Rs. 250 crore.

This is the second such public issue of this financial year from STFC, as the company raised Rs. 750 crore from its first issue in July and the issue had got preclosed in just seven days time on July 24th.

Shriram Transport Finance offered 10.90% per annum for 36 months and 11.15% per annum for 60 months in its last issue to the individual investors. This time the rates are 35 basis points (or 0.35%) higher at 11.25% per annum for 36 months and 11.50% per annum for 60 months. The company did not offer 84 months option in its first issue. There is no monthly interest option this time.

Here you have the table having the details about the tenors and the interest

rate options with cumulative and non cumulative option.

As you can check from the table above, there is an additional incentive of 0.50% p.a. with 36 months option, 0.75% p.a. with 60 months option and 1% p.a. with 84 months option. Unlike tax-free bonds, this additional incentive is available to the individual investors irrespective of the size of their investment amount.

Categories of Investors - The investors have been classified in the following four categories and the individual investors fall in Category III as well as Category IV.

§  Category I – Institutional Investors

§  Category II – Non-Institutional Investors

§  Category III – High Net-Worth Individuals, including Hindu Undivided   Families (HUFs)

§  Category IV – Retail Individual Investors, including Hindu Undivided    Families (HUFs)

Non-Resident Indians (NRIs), foreign nationals and qualified foreign

investors (QFIs) among others are not eligible to invest in this issue.

Allocation Ratio - 50% of the issue is reserved for the Retail Individual Investors. The individual investor  can invest up to Rs. 5 lakh and 30% of the issue is reserved for the High Net-Worth Individual Investors. 10% of the issue is reserved for the Institutional Investors and the remaining 10% is for the Non-Institutional Investors (NIIs). The allotment will be made on a “first come first serve” basis.

Minimum Investment - The company has decided to keep the minimum investment requirement is  Rs. 10,000 again The face value of bond is  Rs. 1,000 each.

Listing - STFC will get these bonds listed on the National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE). Investors can apply for these bonds either in physical form or in demat form. The company will get the NCDs allotted and listed within 9 working days from the date of closure of the issue.

Rating & Nature of the NCDs - CRISIL has rated these NCDs as ‘AA/Stable’ and CARE has assigned a rating of ‘AA+’ to this issue. Moreover, these NCDs are ‘Secured’ by a first charge on an identified immovable property and specified future receivables of the company.

Taxability & TDS - The interest earned on these NCDs will be taxable as per the tax slab of the investors. TDS will be applicable if the NCDs are taken in the physical form and the interest amount exceeds Rs. 5,000 in a financial year. But, if you take these NCDs in your demat account, the company will not deduct any TDS from the interest income.

Interest on Application Money & Refund - Investors will get interest on their application money @ 9% p.a., from the date of investment till the deemed date of allotment, and @ 4% p.a. on the amount liable to be refunded.

Interest Payment Date & Record Date - STFC will make its first interest payment on April 1, 2014 and then on April 1st every year. The record date will be 15 days prior to every interest payment date.

IIFL NCDs Issue vs. STFC NCDs Issue vs. HUDCO Tax-Free Bonds

The business model of Shriram Transport Finance is good and its credit rating also suggests that.  If you want to go with this issue, prefer short term period instead of long term period.

The investors falling in the higher tax brackets should opt for tax-free bonds rather than these taxable NCDs. So, personally I would go for HUDCO tax-free bonds or the upcoming IIFCL tax-free bonds rather than these STFC NCDs.

If you don’t fall in any tax bracket or fall in 10% tax bracket then you can consider this issue.

For more detail about any other query related investment, you can contact me through my email.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com