SUKANYA SAMRIDDHI YOJNA

SUKANYA SAMRIDDHI YOJNA

Modi government has launched campaign ‘Beti Bachao Beti Padao’. Under this scheme the government has launched Sukanya Samriddhi Yojna Account. It is a small saving deposit scheme for the girl child to support her education and marriage. This account can be opened in the name of girl child from the time she is born till she becomes 10 year old. It can be opened in a post office or any public sector bank.

It can be opened with a minimum amount of Rs 1000 and maximum of Rs 1.5 lakh. The money can be deposited till 14 year from the date of account opening by parents or guardians. The interest rate will be decided by government every year. For FY 2014-15, the interest rate is 9.1% and it is compounded annually. The interest will be tax free. You can avail section 80C tax benefit, the amount deposit in this account till Rs 1.5 lakh in each financial year.

The account will mature after 21 years from the date of account opening. 50% fund can be withdrawn after the girl turns 18 year old. The premature closure of account is allowed in the case of death of girl child. If you do not deposit any amount in a whole year, a penalty of Rs 50 charged. One family can open only 2 accounts even if there are more than 2 girl child in family. Only 1 account per girl child is allowed. You cannot operate account online.

This scheme is better than post office schemes and fix deposit schemes or RD schemes. It will give the same tax benefit as PPF. It is good plan for your child because at least the government will try to meet the inflation rate at least. Interest rate will be announced every year. It is illiquid investment so invest in planned manner. Birth certificate of girl child, address proof and photo identity proof of girl child and parents/ guardian are required documents for opening the account.

It is less risky investment option and it will not give return like mutual funds or share market. As an asset allocation plan for debt investment, one can consider it. In my personal opinion, if you invest for 21 year then it is not much good option. A good mutual fund will give much better return if you compare between mutual fund and this scheme. I have still not opened this account for my daughter as I already invest in mutual fund.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for conducting seminar in your city, just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

What should FD investors do in falling interest rate time?

What should  FD investors do in falling interest rate time?

Decreasing inflation rate and demand of growth are putting some pressure on RBI to decrease the interest rate. Calls for lower interest rate getting louder day by day as the industry and government both are seemed determined towards high growth. The big question what should the fix deposit investor in current environment who do not want risk of the share market’s ups and downs.

Many banks are offering 8.5% to 9.5% interest on fix deposit till tenure 5 years. If you want to take a little bit risk, you can earn more from companies fix deposit. There is much possibility of rate cut in 2015 by RBI. It is the right time to lock your money in these instruments.

The largest public sector bank SBI is offering 8.5% on its fix deposit. Of course you should go with high rated NBFC or companies fix deposit with a little bit of risk. For 3 year fix deposit, HDFC is offering 9.0%, Mahindra Finance is offering 9.75%, Shriram Transport FD offering 10.5%, Bajaj Finance is 9.65% offering and GATI is offering 12 % according to their credit rating.

Now a days many manufacturing companies are popular among investors. JK paper, Kores India, JK Tyres are offering between 9.5 to 12% return which is much higher than bank fix deposit. Many companies are offering monthly income option. Companies pay the interest every month or quarterly or half yearly as per your choice. Retired individuals and senior citizen often look for these options which give them fix monthly income.

Since fixed deposits are unsecured instruments, investor should go with high rated and well managed companies. AAA or AA ratings are consider very safe among investors in fix deposit.

If you have doubt about investment product and want more information regarding investment or you need investment services, feel free to ask us. We also conduct the seminar on investment and financial planning. If you are interested for seminar in your city just drop the mail.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Bank Fix Deposit: How much safe?

Bank Fix Deposit: How much safe…?

Whenever I met my investors and friends, I have seen a lust for fix deposit in all of them almost all time. Many times I have experienced that people do the fix deposit in banks with very confidence. In our country, people have high degree faith in banks. They consider it very much safe. In the view of safety, they may be right but there are also other important aspects associated with your investment which you ignore many times. I am not saying that you should agree with my views but at least try to understand what I want to say here. In this article we will discuss all aspects associated with bank fix deposit.

Safety: Till now you know or understand that all money deposited in banks are safe. Please update and correct yourself only amount Rs 1 lakh insured by the banks regardless whatever money you have deposited in banks. It means if you deposit Rs 10 lakh fix deposit in your banks and in case of any bad events occur with bank will be liable to pay only Rs 1 lakh.

Now you will argue that the bank will never bankrupt in India. Please remember 2008 events in US, even more than 100 years old banks had got bankrupt in that year so nothing is impossible in financial world.

Return: We Indian always much concern about safety not return. When we say return then your focus should be on net return after deducting tax and inflation effect. We many times ignore inflation and taxes and blindly do the fix deposit at the published rate by banks or corporate.

Here I take example of one of my friend for much understanding about net return. My friend Ashutosh has done fix deposit of 10 lakh with bank for 1 year at 9% return offered by the banks. My friend comes in 30% tax bracket. After 1 year when his fix deposit became mature he had got Rs 10.90 lakh. Now he has to pay 30% tax (ignore other taxes for calculation) on return so after deducting tax Rs 27,000 now the amount in his hand remain 10.63 lakh. After deducting tax his return was 6.3%. If inflation in that year average remains 8% then his net return become negative -1.7%. It is the real picture of your fix deposit whether you believe or not. Inflation is real culprit which eats your significant part of your return.

Goal: Always associate your each investment with a specific goal and make plan according to your near and long term plan. If your investment does not generate net positive return then it cannot fulfill your goal. Investment without planning ultimately will not give you a satisfaction and you will always confused about investment and will do some mistake during investment.

There are many other options available to fulfill your goal in the market. Keep in mind that at least your investment should generate positive return after considering tax and inflation.

If you want more information regarding investment or you need investment services, feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

SHRIRAM CITI UNION FINANCE LIMITED: NCD Offer

If you willing earn more than bank fix deposit then this NCD for you. Obviously you would have to take more risk for that. Shriram Citi Union Finance Ltd is an NBFC and part of the reputed Shriram group of companies. It offers loan to the small enterprise, provides  loan against gold, financing for two wheeler and other commercial goods segment. It is the market leader of small loan segment in financial year 2013 with the estimated market share of 41.6%.

The company has come with public offer secured NCD of face value of Rs 1,000 each. The total size of issue is Rs 20,000 lakh. The 40% of issue is reserve for retail investor category. The retail category investment limit is up to Rs 5 lakh. The minimum application size is Rs 10,000 (10 NCD). The NCD would be listed on BSE. It would be available in both mode physical and demat form.

If you have invested Rs 10,000 in this NCD, you will get the below mentioned amount at the end of the term.

24 Month	36 Month	60 Month
Rs 12,321	Rs 13,862	Rs 17,427.60

It means the effective yield per annum would be 11% for 24 months, 11.50% for 36 months and 11.75% for 60 months.

Taxation:

A listed debenture is treated as a long term capital asset if you hold it more than 1 year from the date of allotment. The long term capital gain would be 10% if calculate without indexation and would be 20% if use indexation method.

Rating agency CARE has given it AA rating. Investor may choose this to allocate some part of their investment portfolio. 

If you want more information regarding investment or you have any other query about investment feel free to ask us.

Warm regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Are you paying  30% tax on Bank FD…?

I have seen since my childhood that majority of us feel very comfortable invest in bank fixed deposit. Either you educated or illiterate most of us assume that bank FD is safest and the best instrument for investment.  If you are in 20% or 30% tax bracket, you have to pay tax according to your tax slab on your earned interest income from FD. There are many fixed maturity plans (FMPs) available which are safe compare with equity market investment and you can also save a huge amount of tax or many times pay nil tax. When you invest in debt funds and hold it more than one year you have two choices to pay the long term capital gain. Either pay flat 0% on capital gain or pay 20% using indexation method. Let us take a simple example for better understanding.

Bank FD investment:

Mr A has deposited Rs 1 lakh in bank FD for  one year and earn interest Rs 9,000 at the rate of 9%. If Mr A is in 30% tax slab then the tax liability is Rs 2700. In means after post tax his real gain only Rs 6300. In reality, Mr A has earned after paying tax only 6.3% on his bank FD investment which even does not cover inflation also.

FMP investment:

Mr B has invested Rs 1 lakh in 365 days FMP in Feb 204. After one year Mr B would earn around 9.5%. It means Mr B would earn Rs 9,500 after one year on his Rs 1 lakh investment. Now Mr B has two options to pay the tax, either pay flat 10% on capital gain or use indexation tax benefit method and pay 20% on gain.

If calculate according to flat 10% method Mr B would pay Rs 950 tax. Before calculate tax according to indexation tax benefit, first understand about it.

What is Indexation Tax Benefit Method ?

The government of India announces a number called the cost inflation index (CII) every year. It represents the inflation movement of our country. We adjust our investment value according to this CII index. The CII for the year 2013-14 is 939 and expected CII index for 2014-5 would be 1,005 if assuming inflation 7%. The formula of obtaining the inflation adjusted value is as given below:

Inflation adjusted value = Invested Amount X (CII at the time of sale/ CII at the time of purchase)

Inflation adjusted investment value = 1,00,000 X (1,005/939) = 1,07,028

Net capital gain :  1,09,500 - 1,07,028 = 2,472

Tax Payable: 2,472 X 20% = 495

So Mr B have two choices either he can pay Rs 950 according to flat tax calculation method or pay Rs 495 according to inflation indexation method. Obviously Mr B would like to pay tax Rs 495. So the real gain after tax would be1,09,005 (1,09,500 – 495).

If Mr B uses Indexation tax method then after post tax return would be 9.05% whereas in the case of bank FD Mr A’s after tax return would be 6.3%.

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

www.artofinvest.com

www.arvindtrivedicfp.blogspot.in

Confused between interest rate and effective yield..?

Confused between interest rate and effective yield..?

We often see the advertisement in daily newspaper, magazine about the fix deposit offered by financial institution like bank, NBFC or corporate. They all offer the attractive return on fix deposit and often used a famous term “annualized effective yield”. There are difference between interest rate of fix deposit and annualized effective yield. The investors often don’t able to differentiate these two terms. Effective yield always look attractive than rate of interest on FD. We will understand it through an example.

Let us say, one financial institution offer an interest rate of 10% quarterly compounded for 1 to 10 year. So if one invest Rs 1,00,000 in this fix deposit for 4 year. In the first year at 10% quarterly compounded interest, he will get total interest Rs 10,381. After 4 year he will get total maturity amount of Rs 1,48,450. It means he has earned total interest Rs 48,450. To know the annualized effective yield we will divide it by no. of year deposit.

                 48450/4 = 12112.5

Annualized Effective Yield = (12112.5/100000)*100 = 12.11%

 Now you can easily understand the difference between these two types of rate. It means interest earned is same but companies can show it in different style. To attract the clients and to edge over the competitor, often some financial institution emphasis on a higher yield figure than normal rate.

So next time, when you go for fix deposit , please ask your representative for both rates and according to that comparision with other available fix deposits in the market.

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

Bank Fix Deposit Rate

Declining Fixed deposits Rates – Which one best Nationalised banks or Private banks

Since last one month interest rate on fix deposit have been declining. Now the big question for investors where should they park their money ? These are those investor  for whom capital protection is top priority. Now the option whether they should go with Nationalised banks or Private banks.

 A lot of information about this question is available online and print media also. People often ask me also where they should invest for higher interest rates to lock their savings for one year or more. Over the last one month, long-term fixed deposits (FD) rates have been on a decline. The largest bank of the country State Bank Of India (SBI) has already reduced interest rates, which now stands at 8.5% p.a. for any FD term of one to ten year. The long-term FD rates of SBI are less competitive compared to many other nationalised banks, which still give 9.25%-9.35% p.a.
 

The bigger private sector banks like ICICI Bank, HDFC Bank and Axis Bank also moved quickly towards to reduce their rates. In general these banks often slightly more interest rate offer than SBI. The maximum rates with ICICI Bank and HDFC Bank are 8.75% p.a.; while Axis Bank offers 9% p.a. It means nationalised banks are still a better bet for higher interest rates when compared to big private banks as they are offering 9.25%-9.35%.
 

Smaller private bank like Kotak Mahindra Bank, YES Bank, Karur Vysya Bank and IndusInd bank lowered their rates to 9%-9.25% p.a. The cooperative bank like Saraswat Bank was offering 10% simple interest paid quarterly, which is now reduced to 9.25%. While locking at 10% is not possible today from well known banks, nationalised banks can get you 9.3% to 9.35% interest for a FD of one to two years tenure, which is a good option. Few cooperative banks are offering 9.75% to 10.25% on FDs today. But safety of your funds should have higher priority than 0.5% to 1% more interest. And these banks charge higher penalties for premature withdrawal and therefore liquidity of the FD before maturity can be a concern. Some bank’s fix deposit rate as given below:

If you have any query regarding investment please feel free to ask.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

HDFC PLATINUM SENIOR DEPOSIT PLAN

HDFC Ltd has introduce a new scheme HDFC PLATINUM SENIOR DEPOSIT PLAN with effect from September 27, 2012 exclusively for Senior Citizens (who are 60 years and above). Maximum Deposit amount is Rs. 25 lacs per individual. The interest rates and the details attached

a) Maximum Deposit amount is Rs. 25 Lac per individual.

b) Interest is Compounded annually for cumulative interest option.

The detail as given below :

If you have any query about above scheme. Please feel free to contact me.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com