Bank FD v/s Banking Fund

Bank FD v/s Banking Fund

We Indian love very much keep deposit in bank FD. Since my childhood I have seen immense faith of people in bank FD because they all think that bank FD is the safest instrument on this earth to keep their hard earned money. Very few people know that the bank only give guarantee maximum Rs 1 lakh through insurance in case of any system collapse or bankruptcy. It means more than Rs 1 lakh in bank always in risk. However, there are very low chances to fail the bank because our central bank RBI is one of the top regulator in world. Every financial instrument have their own risk and reward. So we are going to do a small comparison between bank FD and banking fund.

For example a person invest Rs 1,00,000 in SBI bank FD and in a banking Fund on 20th May 2003. After 11 year the value of invested Rs 1 lakh in SBI bank FD grows up to Rs 2,66,190. On this amount we have to pay tax according to our income slab and bank deducts TDS direct at the time of withdrawing the money. Bank FD is a secure investment compare with other available instruments. It hardly beats the inflation. Therefore it is not a wealth creator.

In other hands, banking funds invest in banking stocks. After 11 year, the value of invested Rs 1 lakh grows up to Rs. 14,67,000. And the amazing thing that there is no TDS deduction and it is tax free. It means you have not to pay tax on your gain. The only risk is volatility because equity is always volatile and checks your patience. It is a wealth creator instrument for long term investor.

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.

Common error during tax planning

Avoid common error while Tax Planning

Between January to March the people keep busy and rush to find the tax saving instrument. I am also getting more queries about tax saving in these days. I have observed that many small and basic things about investment investor ignore in hurry for tax saving as dead line approached. So I have decided those common errors which happen very frequently by the investors. Many of these, you may be already know but here I am mentioning again.

Try to find out actual return: There are many products in the market which are offering same return and another offer more or less return. For meaningful comparison among any investment products, try to find whether the return on product is taxable, whether investment amount tax free or not. For example, the interest on PPF is tax free but interest earned on NSC (National Saving Certificate) is taxable. So there are need to compare the post tax return to find out which tax saving instrument more appropriate.

Investment Limit: Before any investment check the investment limit eligible for tax deduction. If you invest more than 1 lakh under section 80C then you will get only tax benefit of Rs 1 lakh. Before any investment to save tax under section 80C please check your other expenses which comes under section 80C like, provident fund, school fee of children, housing loan principal repayment, life insurance premium etc.

Check the eligibility of the product: It is very important that the instrument in which you are going to invest whether come under tax saving category or not. All life insurance products, mutual funds and 5 year bank fix deposits are not eligible for tax deduction. So it is very important to make sure to check the eligibility of the product before invest for tax saving.

The best way to avoid above mentioned error to make your tax plan in well advance at the start of financial year. Keep in mind the real rate of return, tax eligibility and limit of investment before make your investment decision.

My best wish to all of you for good financial health and physical health on the eve of 26^th January Republic Day of India. For more detail and any other query related investment, you can contact me through my email.

HUDCO Tax Free Bond - Opening on 17 September

HOUSING AND URBAN DEVELOPMENT CORPORATION LIMITED

After the REC tax-free bonds, the next company to come up with such an issue is Housing and Urban Development Corporation Limited (HUDCO). The company will be launching its issue from the coming Tuesday, September 17.

As compared to REC’s 8.26% (10Y), 8.71% (15Y) and 8.62% (20Y), HUDCO is offering 8.39%, 8.76% and 8.74% rate of interest for the respective tenors.

Though the interest will be paid annually but the date is not available. No prospectus available on company’s website.

HUDCO is raising total Rs. 5,000 crore from this tax-free bonds issue in this financial year, out of which it has already raised Rs. 190.80 crore through private placement. So, now it plans to raise the remaining Rs. 4,809.20 crore through this public issue, including the green-shoe option of Rs. 4,059.20 crore. The base issue size is Rs. 750 crore.

The official closing date of the issue is October 14 and the company may extend or preclose the issue, depending on the investors’ response to the issue.

The main features of REC issue as maintained below:

Rating of the issue - CARE and India Ratings have assigned a rating of ‘AA+’ to this issue, which is also ‘Secured’ in nature. HUDCO is wholly-

owned by the government of India, so the investors’ investment is quite safe.

Listing - HUDCO will get these bonds listed only on the Bombay Stock Exchange (BSE). The allotment and the listing will happen within 12 working days from the closing date of the issue. Investors can apply for these bonds either in physical form or in demat form, as per their comfort and requirement.

Interest on Application Money & Refund - The investors will get interest on their application money also, from the date of investment till the deemed date of allotment, at the same rate of interest as the applicable coupon rate is. Unlike REC issue which is to pay 5% p.a. interest on the refund money, HUDCO will pay the applicable coupon rate.

Categories of Investors & Basis of Allotment - The investors again have been classified in the following four categories and each category will have certain percentage of the issue reserved for the allotment:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved

Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 30% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue is reserved

QIBs portion had 20% of the issue reserved in the REC issue and after observing their response in that issue, their reserved portion has been reduced to 10% in this issue. Category III HNI investors will get this 10% share of the pie. NRIs are eligible to invest in this issue as well, on a repatriation basis as well as on non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible.

Minimum & Maximum Investment - There is no change in the minimum investment requirement of Rs. 5,000 i.e. at least 5 bonds of Rs. 1,000 face value each. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest rates of this issue look very attractive for the investor. I think it is good investment option for the investor of any tax bracket. Investors must go with it for safe and reasonable return.

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