Public Provident Fund (PPF) is really very interesting and a great topic to write about. I’ve already mentioned practical tips to be kept in mind while opening and operating a PPF account. However, there are many pitfalls which you should avoid while investing in a PPF account.
Here’s a list of 11 things you need to be careful about while operating your Public Provident Fund Account:
1. Don’t open two PPF accounts in the name of one individual. Even if your current account is inactive, you’re not allowed to open a new PPF a/c.
2. Don’t deposit more than the maximum allowed. You won’t get the interest on excess deposit in your PPF account.
3. Don’t forget to deposit a minimum amount of Rs 500 every year to avoid the PPF account become inoperative. You will be denied loans / partial withdrawal before maturity.
4. At the time of extension of PPF account, submit Form H, otherwise the continuation will be deemed as “extension without subscription” or “irregular” and you will be denied interest on additional deposits and also become ineligible to claim section 80C deduction.
5. Don’t forget to nominate, otherwise your family will have to obtain a succession certificate to receive the PPF proceeds in case of your death.
6. Avoid premature withdrawals and loans unless there is an emergency because PPF is one of the best long term saving instrument available to you.
7. Understand that post-maturity of PPF if you choose 'extension without further deposits', you can’t change it to 'continuation with further deposits' after the expiry of one year. So make an informed choice.
8. Don’t recycle the PPF account because it defeats the very purpose of opening a Public Provident Fund account.
9. After the subscriber’s death, nominee should consider closing the PPF account at the earliest instead of continuing it because a nominee can’t appoint a further nominee.
10. While making deposits in your PPF account at the end of the financial year for tax savings purpose ensure that you deposit the cheque / demand draft well in time…remember that date of realization is treated as date of deposit. If the cheque/draft is not encashed by 31st March, the amount will be treated as deposit for the next financial year and you will lose tax benefit for the current financial year. This is as per the amendment made by the Government of India in February 2010 in the Public Provident Fund Scheme. Earlier in case of PPF (unlike other small savings), date of presentation/tender of cheque was treated as date of deposit.
11. Don’t open a PPF account in the name of your HUF because vide an amendment made in the year 2005, PPF account can’t be opened in the name of HUFs although existing accounts are allowed to earn interest till their maturity.Besides, even the existing PPF Account in the name of HUF is not allowed any further extension after the initial maturity period of 16 years.
Tuesday, December 28, 2010
Sunday, December 19, 2010
5 tips to select stocks for investment
A general trend that one observes in the equity market is when share prices start falling, many investors, especially in the retail segment, follow a wait-and-watch policy to enter the market. They try to look beyond at the reversal of the ongoing trend.
Follow these tips to find some good stocks to invest in any market scenario :
1. There are always good investment ideas available. One just needs to search them out. One should invest in stocks which are available at attractive valuations and have good growth prospects. In fact, it is good to be a contrarian and look for sound companies in which the general view is negative.
2. A few parameters remain constant to find good stocks such as kind of business, quality of management and revenue visibility. You should go with the sector, which is easy to understand and has a clear revenue visibility for the next 2-3 years.
3. You should do some research before putting in money in any stock. Choose sectors that have showed higher capacity utilization and higher returns on capital. Once a sector is identified, identify companies within those sectors. A good starting point can be quarterly results declared by companies. Therefore, you can adopt a top down approach to identify the sectors and then the stocks within those sectors that will perform well in the next 1-2 years.
4. In a market which has already gone up to some extent, it is the valuation that becomes the deciding factor apart from the factors mentioned above. Every thing has a fair price. A stock might be fundamentally strong but high stock prices can make it unattractive. For companies in different sectors, you should use different measures to see the relative valuation.For instance, for banks and other financial institutions, one should use price to book value ratio, whereas, for manufacturing companies one can judge through replacement cost. Land bank and their market value could be factored in to take a call on a real estate company.
5. Since the stock markets are influenced by a variety of factors it is advisable to seek advice from experts having knowledge and experience of investing in the markets, especially when markets have gone up by some extent.
Follow these tips to find some good stocks to invest in any market scenario :
1. There are always good investment ideas available. One just needs to search them out. One should invest in stocks which are available at attractive valuations and have good growth prospects. In fact, it is good to be a contrarian and look for sound companies in which the general view is negative.
2. A few parameters remain constant to find good stocks such as kind of business, quality of management and revenue visibility. You should go with the sector, which is easy to understand and has a clear revenue visibility for the next 2-3 years.
3. You should do some research before putting in money in any stock. Choose sectors that have showed higher capacity utilization and higher returns on capital. Once a sector is identified, identify companies within those sectors. A good starting point can be quarterly results declared by companies. Therefore, you can adopt a top down approach to identify the sectors and then the stocks within those sectors that will perform well in the next 1-2 years.
4. In a market which has already gone up to some extent, it is the valuation that becomes the deciding factor apart from the factors mentioned above. Every thing has a fair price. A stock might be fundamentally strong but high stock prices can make it unattractive. For companies in different sectors, you should use different measures to see the relative valuation.For instance, for banks and other financial institutions, one should use price to book value ratio, whereas, for manufacturing companies one can judge through replacement cost. Land bank and their market value could be factored in to take a call on a real estate company.
5. Since the stock markets are influenced by a variety of factors it is advisable to seek advice from experts having knowledge and experience of investing in the markets, especially when markets have gone up by some extent.
Thursday, December 16, 2010
Top 10 Mutual Fund (ELSS) schemes to save taxes
The main purpose of investing for most investors is tax saving. Equity linked saving schemes (ELSS) are those mutual fund schemes that help you save taxes as well as generate decent returns. But, how do you separate the wheat from the chaff? Here is a list of few ELSS schemes that you should consider for investing.
The main purpose of investing for most investors is tax saving. Equity linked saving schemes (ELSS) are those mutual fund schemes that help you save taxes as well as generate decent returns. But, how do you separate the wheat from the chaff? Here is a list of few ELSS schemes that you should consider for investing.
The true measure of ELSS scheme’s worth is consistency. Following four ELSS schemes make the cut based on their 5 years, 3 years and 1 year performance put together (see tables). These schemes have remained in the Top 10 ELSS schemes for all these durations :
Canara Robeco Equity Tax Saver
HDFC Taxsaver
Sahara Tax Gain
Birla Sun Life Tax Relief 96
Investment in ELSS schemes qualify for deductions under section 80C. So, you could max your returns by investing the entire Rs 1 lakh limit of your Section 80C deductions through ELSS investments alone. However, be cautious as ELSS schemes have a risk grade higher than other investments that qualify under section 80C such as life insurance, PPF, NSC, etc.
Another important factor to consider is the lock-in period. ELSS schemes have a 3 year lock-in, that means you can not sell the investment before this period.
ELSS Schemes Ranking based on 5 Year Returns:
Magnum Taxgain
Canara Robeco Equity Tax Saver
Sundaram BNP Paribas Taxsaver
HDFC Taxsaver
Sahara Tax Gain
ICICI Prudential Tax Plan
Franklin India Taxshield
Birla Sun Life Tax Relief 96
Franklin India Index Tax
Principal Personal Tax Saver
The main purpose of investing for most investors is tax saving. Equity linked saving schemes (ELSS) are those mutual fund schemes that help you save taxes as well as generate decent returns. But, how do you separate the wheat from the chaff? Here is a list of few ELSS schemes that you should consider for investing.
The true measure of ELSS scheme’s worth is consistency. Following four ELSS schemes make the cut based on their 5 years, 3 years and 1 year performance put together (see tables). These schemes have remained in the Top 10 ELSS schemes for all these durations :
Canara Robeco Equity Tax Saver
HDFC Taxsaver
Sahara Tax Gain
Birla Sun Life Tax Relief 96
Investment in ELSS schemes qualify for deductions under section 80C. So, you could max your returns by investing the entire Rs 1 lakh limit of your Section 80C deductions through ELSS investments alone. However, be cautious as ELSS schemes have a risk grade higher than other investments that qualify under section 80C such as life insurance, PPF, NSC, etc.
Another important factor to consider is the lock-in period. ELSS schemes have a 3 year lock-in, that means you can not sell the investment before this period.
ELSS Schemes Ranking based on 5 Year Returns:
Magnum Taxgain
Canara Robeco Equity Tax Saver
Sundaram BNP Paribas Taxsaver
HDFC Taxsaver
Sahara Tax Gain
ICICI Prudential Tax Plan
Franklin India Taxshield
Birla Sun Life Tax Relief 96
Franklin India Index Tax
Principal Personal Tax Saver
Friday, December 10, 2010
KVP - Kisan Vikas Patra
* Minimum Investment Rs. 500/- No maximum limit.
* Rate of interest 8.40% compounded annually.
* Money doubles in 8 years and 7 months.
* Two adults, Individuals and minor through guardian can purchase.
* Companies, Trusts, Societies and any other Institution not eligible to purchase.
* Non-Resident Indian/HUF are not eligible to purchase.
* Facility of encashment from 2 ½ years.
* Maturity proceeds not drawn are eligible to Post office Savings account interest for a maximum period of two years.
* Facility of reinvestment on maturity.
* Patras can be pledged as security against a loan to Banks/Govt. Institutions.
* Patras are encashable at any Post office before maturity by way of transfer to desired Post office.
* Patras are transferable to any Post office in India.
* Patras are transferable from one person to another person before maturity
* Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced patras.
* Nomination facility available.
* Facility of purchase/payment of Kisan vikas Patras to the holder of Power of attorney.
* Rebate under section 80 C not admissible.
* Interest income taxable but no TDS
* Deposits are exempt from Wealth tax.
* Rate of interest 8.40% compounded annually.
* Money doubles in 8 years and 7 months.
* Two adults, Individuals and minor through guardian can purchase.
* Companies, Trusts, Societies and any other Institution not eligible to purchase.
* Non-Resident Indian/HUF are not eligible to purchase.
* Facility of encashment from 2 ½ years.
* Maturity proceeds not drawn are eligible to Post office Savings account interest for a maximum period of two years.
* Facility of reinvestment on maturity.
* Patras can be pledged as security against a loan to Banks/Govt. Institutions.
* Patras are encashable at any Post office before maturity by way of transfer to desired Post office.
* Patras are transferable to any Post office in India.
* Patras are transferable from one person to another person before maturity
* Duplicate can be issued for lost, stolen, destroyed, mutilated and defaced patras.
* Nomination facility available.
* Facility of purchase/payment of Kisan vikas Patras to the holder of Power of attorney.
* Rebate under section 80 C not admissible.
* Interest income taxable but no TDS
* Deposits are exempt from Wealth tax.
PPF vs. NSC – A Comparison
PPF vs. NSC – A Comparison
1. Returns
While PPF offers 8% per annual (p.a.), NSC offers 8% per annual compounded half yearly i.e., the effective yield is 8.16% per annual. Not a big difference.
2. Tax on returns
PPF returns are tax-exempt but NSC returns are taxable. Interest accrued on NSC is to be included in your total income every year.
However, you’re also entitled to get the deduction under section 80C for the interest accrued on NSCs, because this notional interest is deemed to be reinvested. So, the net effect is that your section 80C limit gets reduced to that extent because otherwise you would have made investment in other tax-saving instruments to the extent of accrued interest on the NSC. If your section 80C limit already stands exhausted, then your post-tax returns from NSC would become 6.48% if you fall in 20.6 per cent tax bracket and 5.64% if your marginal tax rate is 30.9 percent.
3. Whether returns are guaranteed/ fixed
Once you invest in a NSC the interest rate gets locked-in i.e., can’t be changed subsequently, where as in case of PPF the returns are assured but not fixed. In other words, depending upon the interest rate scenario, government can move it either downward or upward, as the economic situation demands.
However, as the interest to your PPF account gets credited every year, the change in interest rate is always prospective and not retrospective.
Let’s see the past changes in the PPF interest rates:
From 1986-87 to 1999-00 -> 12.00%
2000-01 -> 11.00%
2001-02 -> 9.50%
2002-03 -> 9.00%
Since 2003-04 -> 8.00%
Now, let’s see the past changes in NSC interest rates:
Mar’01 to Feb’02 -> 9.5%
Mar’02 to Feb’03 -> 9.0%
Mar’03 onwards -> 8.0%
From the above mentioned changes in PPF and NSC interest rates, we notice that PPF and NSC interest rates are changed simultaneously, so that both are at par (with a slight difference due to half yearly compounding in case of NSCs).
However, what makes the yield differ is the fact that in case of NSC’s revised rates applies only for new purchases, while for PPF new interest rates apply to all accounts, both new and existing. For instance, let’s say you invested Rs 1000 each in both PPF and NSC in March 2001. Now, while for NSC you would have received interest @ 9.5% per annual (compounded half-yearly) for all the 6 years of it’s duration, your PPF account would be credited with interest @ 9.5% for only the year 2001-02 and for subsequent years reduced interest rate would apply (i.e., 9% for 02-03 and 8% since 03-04 onwards).
4. Liquidity
While the duration of NSC is 6 year, PPF carries a lock-in period of 15 years. Besides, PPF premature account closure is not permissible except in case of death. Although partial withdrawals are allowed from the PPF account from seventh year onwards, the actual amount depends on the balance in the account in earlier years. Thus, NSCs offer better liquidity than PPF.
5. One time or regular investment
While NSC requires one time investment, PPF requires regular investment. NSC is the form of a certificate but PPF is in the form of an account and to keep it active, you’ve to make regular investment – a minimum amount of Rs 500 has to be deposited every year to keep the account active.
So, except the parameter of ‘tax ability of returns’, on all other counts the NSCs score over PPF.
1. Returns
While PPF offers 8% per annual (p.a.), NSC offers 8% per annual compounded half yearly i.e., the effective yield is 8.16% per annual. Not a big difference.
2. Tax on returns
PPF returns are tax-exempt but NSC returns are taxable. Interest accrued on NSC is to be included in your total income every year.
However, you’re also entitled to get the deduction under section 80C for the interest accrued on NSCs, because this notional interest is deemed to be reinvested. So, the net effect is that your section 80C limit gets reduced to that extent because otherwise you would have made investment in other tax-saving instruments to the extent of accrued interest on the NSC. If your section 80C limit already stands exhausted, then your post-tax returns from NSC would become 6.48% if you fall in 20.6 per cent tax bracket and 5.64% if your marginal tax rate is 30.9 percent.
3. Whether returns are guaranteed/ fixed
Once you invest in a NSC the interest rate gets locked-in i.e., can’t be changed subsequently, where as in case of PPF the returns are assured but not fixed. In other words, depending upon the interest rate scenario, government can move it either downward or upward, as the economic situation demands.
However, as the interest to your PPF account gets credited every year, the change in interest rate is always prospective and not retrospective.
Let’s see the past changes in the PPF interest rates:
From 1986-87 to 1999-00 -> 12.00%
2000-01 -> 11.00%
2001-02 -> 9.50%
2002-03 -> 9.00%
Since 2003-04 -> 8.00%
Now, let’s see the past changes in NSC interest rates:
Mar’01 to Feb’02 -> 9.5%
Mar’02 to Feb’03 -> 9.0%
Mar’03 onwards -> 8.0%
From the above mentioned changes in PPF and NSC interest rates, we notice that PPF and NSC interest rates are changed simultaneously, so that both are at par (with a slight difference due to half yearly compounding in case of NSCs).
However, what makes the yield differ is the fact that in case of NSC’s revised rates applies only for new purchases, while for PPF new interest rates apply to all accounts, both new and existing. For instance, let’s say you invested Rs 1000 each in both PPF and NSC in March 2001. Now, while for NSC you would have received interest @ 9.5% per annual (compounded half-yearly) for all the 6 years of it’s duration, your PPF account would be credited with interest @ 9.5% for only the year 2001-02 and for subsequent years reduced interest rate would apply (i.e., 9% for 02-03 and 8% since 03-04 onwards).
4. Liquidity
While the duration of NSC is 6 year, PPF carries a lock-in period of 15 years. Besides, PPF premature account closure is not permissible except in case of death. Although partial withdrawals are allowed from the PPF account from seventh year onwards, the actual amount depends on the balance in the account in earlier years. Thus, NSCs offer better liquidity than PPF.
5. One time or regular investment
While NSC requires one time investment, PPF requires regular investment. NSC is the form of a certificate but PPF is in the form of an account and to keep it active, you’ve to make regular investment – a minimum amount of Rs 500 has to be deposited every year to keep the account active.
So, except the parameter of ‘tax ability of returns’, on all other counts the NSCs score over PPF.
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