Thursday, September 22, 2016

Create wealth with conviction and planning, guess work only lead to fear and greed

It is a general and well accepted belief that now(early) is the best time to invest, equity is the best investment vehicle and S-I-P in #Mutual Fund is the best discipline for  the investors. But, there is more to it. Factor which is important element of investment  or financial planning for that matter is the mindset of the investor. Fear factor and lack of planning can lead to massive mismanagement and wealth erosion. The factors including emotion and goal setting are important to make a risk proof investment portfolio. In the next two paragraph I intend to elaborate on the same.  

Detach yourself from emotions like ‘Fear’ and ‘Greed’

RISK remains a common constant factor in every sphere of our lives, so is investments. We do not stop boarding flights after hearing many hijacks, neither we stop traveling by train when we hear about train accidents, nor even we stop praying to rain god despite suffering floods year after year in various part of the country.

Life gives us choices, and we hope for everything to be in a particular fashion to enjoy life to the fullest,  so does investments, with which we create our estate, wealth pool, our pride. Often we talk about risk profile of investor and planning investment accordingly. So, what defines the risk profile of an investor? – It is his age, health, responsibilities and timelines. Similarly investments too come with various risk factors. And, NO investment is risk free, not fixed deposits, gold, land, equity, commodity, dollar or anything. 

Every investment has its own share of risks and rewards associated with it. For example, we can have a fixed and assured appreciation on our wealth in a short span of time through fixed deposits, company deposits, for long term it may not be able to give inflation adjusted returns and the sum my look tiny compared to the needs of future. In similar fashion, it is not mindful to invest in equity/ related instrument for an year if you already have a set deadline and amount requirement, market may just crash and your investment may show an enormous negative return. So, choosing an instrument should depend on the requirement and timeline. FEAR is only when the expectations areunrealistic. 

But still, we invest and grow. And we like to grow despite all risk factors. Rather than focussing on the risks, a smart investor looks at the possible risk mitigation tool, a plan which helps distribution in asset classes, setting measurable goals and simple execution.  

Why do we create Wealth – Set measurable Goals

Wealth creation is a function of setting goals and plan a disciplined action. We need wealth, but without a purpose wealth cannot be enjoyed. We need wealth for certain purposes, namely post retirement life, vacations, medical emergencies, child education, buying Home etc. There are numerous dreams human have, for a few, we can plan our investments. Planning can include simple S.M.A.R.T formula.

S  - SPECIFIC- To attain something we need to have a specific desire, namely buying  car/ Europe vacation/ education/sabbatical

M – MEASURABLE – Clarity on the expectation and exact outcome. If we know the price of the car is 4 times our monthly salary, we need to know in how many months you will be able to save the amount, or if you will take it on loan, how many EMIs you can finish your loan comfortably without stretching limits.

A-ATTAINABLE –  We can dream of moon, but we need a NASA rocket for that. We need to be able pool in the investment within the current inflow

R- REALISTIC – Expectation of returns should be realistic. If you are investing in fixed income product, you need to know, that the income will be on single digit percentage point and equity will be volatile.

T- TIMELY – Goal need to have a timeline. If your child is 5 year old, it is likely he will go for higher studies in 15 years time, so the investment plan need to pan out in a manner that you have your kitty ready to go within that time period.    

Happy Investing!

Monday, September 19, 2016

With the new hike in salary and the yearly bonus, plan tax saving before the Indian festivities blow your pockets


Tax saving instruments and avenue especially for salaried individuals

We are almost halfway through this financial year 2016-17, however, many of us has got the revised paycheques with increment and bonus only in July/ August. The accounts team have given reminders for tax declaration forms. Let us quickly look at the lists of investment options where we can save some tax as well as utilise the fund in building wealth and help good cause.

Tax saving investments can be divided in 4 parts – 1. #Investments  2. #Insurance 3. Expenses 4. #Donations and social causes. In this post I intend to only identify the areas of investments. The next post will elaborate on the best ways to manage tax savings.

Tax savings instruments are introduced by government to promote savings practices, participating in the overall economy growth, encourage donation and charities for good causes and also rewarding investing in environmental-social sectors. It is not to be used as tax evasion tool in any form.
In the Income Tax act of India act, section 80C to 80U covers the tax exemption areas.

Tax saving eligible investments options

Lock-in period
Minimum and maximum investment per year
Other benefits
Tax benefits
The amount is deducted from the salary by the employer. Employer also for makes equal contribution to the fund. This is a compulsory contribution.
As per new laws, one need to mandatorily keep the fund until 58 years of age
Minimum if 12% of Basic and DA. Benefit upto Rs. 1,50,000 investment per year
Employee can avail loan benefits and partial withdrawal allowed on resigning job. This account is transferable on job change
Maturity amount is complete tax free above 5 years
Voluntary Provident Fund, can be opted by an employee, carries same interest rate as

The lower limit not specified, however, upper limit is at 1,50,000
Loan facility/ partial withdrawal facility available
Tax free on maturity

Long term saving scheme by banks, return over 8% annually
15 years
Minimum Rs. 500 a year and maximum Rs. 1,50,000
Enjoys triple tax benefit. Partial withdrawal allowed 6th year onwards
Enjoys triple tax exemption benefit.
Eligible for deduction in the year they are purchased.
5 years, 10 years

The interest earned is non-taxable except last year
The interest earned in the last year is taxable.
Sukanya samridhi Yojana
Special saving scheme promoting development of girl child, enjoys higher interst rate than PPF
Until daughter turns 18 years
Minimum investment of Rs. 1000 year, upto 1,50,000
Enjoys triple tax exemption benefit. No tax on interest earned
Enjoys triple tax exemption benefit.
Tax Saving Fixed deposits
Eligible for deduction n the year purchased, banks and post office have this facility
5 years
Maximum Rs. 1,50,000

Interest earned is taxable on maturity
Senior citizen savings scheme
Deposit schemes in banks for senior citizens

Also enjoys higher interest rate

Insurance/ annuity plans (80CCC)
Premium paid for deffered annuity plans, life insurance schemes
The upper limit is at 1,50,000
Enjoys triple tax exemption benefit

Mutual Fund scheme, with 3 year lock-in period
3 year lock –in period
Minimum 5,000 Maximum investment 1,50,000 per year
Enjoys triple tax exemption benefit
 Rs. 1,50,000
Contribution towards pension account 80CCD(1)
Maximum deduction allowed is 10% of salary, and 10% of gross income for self-employed,

limit – Rs. 1,50,000

 Upto Rs. 1,50,000
Self contribution - Pension Fund/ Atal pension Yojana- 80CCD(1B)

Towards NPS/ Atal Pension Yojana

Deduction is allowed on contribution up to Rs 50,000. (This is additional to the available 1,50,000 limit)

 Rs. 50,000
Employer’s contribution -Section 80CCD(2)
Deduction is allowed for employer's contribution to employee’s pension account up to 10% of the salary of the employee.

There is no monetary ceiling on this deduction.

 Upto 10% of employee's salary
Equity Savings scheme 80CCG
A 50% deduction on tax on the investment. Person with salary less than 12 lakh

Rs. 50,000 is the upper limit

 50% deduction on the investment year

Other earnings eligible for tax saving
Interest earned from savings account
Tax savings claimed can be made on interest earned on savings account
Exemption upto Rs. 10,000 per year

Expenses eligible for tax exemptions (Insurance and expenses) 

Life Insurance premium
Premium paid is eligible for tax benefit (for self, spouse, child)
valid on insurance policies if the premium is less than 10% of sum assured
Premium paid for medical insurance
Benefit upto 15,000 for self, spouse and children. Can be upto 20,000 if self/spouse is above 60 years
Additional deduction for 15,000 for parents and 20,000 if parents are above 60 years
Medical expenditure on handicap relative (80DD)
Expense on treatment, maintenance, rehabilitation and care
For 40-80% disability, fixed deduction of 50,000

Severe disability over 80%  - 1,00,000
Medical expense of self/ dependant (80DDB)
For the diseases specified in Rule 11DD. A certificate in form 10 I is to be furnished by the taxpayer from any Registered Doctor.
The maximum amount of deduction allowed from gross total income on condition that no medical reimbursement is received from any insurance company or employer for this amount
Person suffering from physical disability (80U)
Individual who suffers from a physical disability (including blindness) or mental retardation
Deduction of Rs. 50,000/-
Tuition fee
For children of the tax payer, school, college, university or any other institute within India
Capped at Rs. 1,50,000
Home loan
Principal repayment of home loan
Capped at Rs. 1,50,000
Home loan interest payment (80EE)
First time home buyers can avail this facility for self-occupied property 
The value of the house should be less than 50 lakhs and loan amount is less than 35 lakh. This is over and above the 2,00,000 limit
Stamp duty and registration for home buyers
Allowed under 80 C
Capped at Rs. 1,50,000
Deduction on house rent (80 GG)
This is available in case no HRA is attached in the salary structure and  not allotted accommodation by the employer
Maximum of Rs. 60,000 per annum can be claimed
Education loan for higher studies (80E)
Interest on the loan is eligible for tax benefit, can be upto 8 years or the interest payment completed whichever is earlier
Capped at Rs. 1,50,000
Social causes and donations
Donation towards social causes (80G)
Deduction up to either 100% or 50% with or without restriction as provided in Sec. 80G. click here for details
Donation over 10,000 cannot be by cash
Deductions on Contribution by Individuals to Political Parties (80GGC)
Political party registered under section 29A of the Representation of the People Act.
Cash contribution not allowed
Deductions on Income by way of Royalty of a Patent
up to Rs. 3 lakhs

information used/referred from bankbazaar, cleartax, taxguru etc.

Tuesday, September 6, 2016

SREI Infra NCD issue - Good buy for investors with moderate risk and lower tax bracket

#SREI Infra Finance issue of secured NCD of Rs. 250 Crore with an option of retaining upto Rs. 1000 Cr.  to be launched on Sep 7, closing on sep 29, 2016.  
About the company - #SREI Infrastructure Finance Ltd, is a RBI registered non-deposit taking NBFC. Classified as an “Infrastructure Finance Company” in the year 2011 by RBI. The company was originally incorporated in New Delhi on March 29, 1985 by the name Shri Radha Krishna Export Industries Limited with the Registrar of Companies, Delhi & Haryana, in accordance with the Companies Act 1956 as a Public Limited Company, to undertake lease and hire purchase financing, bill discounting and manufacture and export of certain goods. Company’s name was changed to Srei International Limited on May 29, 1992 and further changed to Srei International Finance Limited with effect from April 12, 1994. The name of the Company was further changed from Srei International Finance Limited to its existing name Srei Infrastructure Finance Limited on August 31, 2004. Company is registered as a Non-Banking Financial Company within the meaning of the Reserve Bank of India Act, 1934.

About the issue
From liquidity crunch to overflow, the market has seen a major shift of sentiment in past 6 months. The equity IPOs to Bond issues investors are lapping it up all.

After an overwhelming response of two tranches of DHFL Secured NCD issues, SREI is next on the block. SREI’s base issue at Rs. 250 crore, may retain up to 1000 crore with green-shoe option
Features in details –
Issue open and close - Opens on 7th September 2016, closes on 28th September 2016, however, the allotment is on first cum first served basis and the company may close issue on oversubscription within a day or two as well.
The NCD Bond – SREI is offering NCDs which are backed by security/assets. Hencce, the capital investment is secured by SREI, incase of non-payment/ non-liquidity invesors has the right on liquidating the secured asset to recover the cost.

Tenor – 400 days, 3 years and 5 years

Annual yield – Upto 10%, depending on tenor and interest payout option

Face value – Rs. 1000/ unit

Minimum and maximum investment -  The minimum application amount is Rs. 10,000 collectively across all options on NCDs and in multiples of One (1) NCD after the minimum application.

Categories of Invstors and allotment ratio - 
Category I – Rs. 200 crore
Category II – Rs. 200 crore
Category III – Individual & HUF Investors – Rs. 600 crore

NRIs, QFIs and foreign nationals cannot invest in this issue.
Credit Rating - SREI has received an AA+ from BWR, which s second highest rating after AAA, making it a safe investment option. This issue has received one notch better than last Secured NCD issue of last year which was at  AA.
Format  – Investors can hold both in physical or demat format, demat is not mandatory.
Listing – will be listed on both exchanges - BSE and NSE
Trading – Allowed from the first day, no lock-in period

Taxation – Though the dematerialised NCDs don’t attract TDS, the investment will taxed at short term (less than a year) and long term (debt investment more than a year are taxed at 10%) depending on the holding period. The interest will be taxed as per the tax bracket of the investor.

Frequency of Interest Payment
Minimum Application
Rs. 10000 (10 NCDs)
Face Value/ issue price
Rs. 1000/-
In multiples of
1000 (1NCD)
1000 (1NCD)
1000 (1NCD)
1000 (1NCD)
1000 (1NCD)
1000 (1NCD)
1000 (1NCD)
400 days
5 years
Coupon per annum
Effective Yield (per annum) for Category I, Category II & Category III Investor(s)
Mode of Interest Payment
Multiple mode
Amount (` / NCD) on Maturity for Category I, Category II & Category III Investor(s) **
Rs. 1100
Rs. 1000
Rs. 1000
Rs. 1322
Rs. 1000
Rs. 1000
Rs. 1611

Application Form for SREI Infra NCDs – Click here

Financial Health of the company - Annual Results Consolidated Figures in Rs. Crores / View Standalone

Operating Profit
Other Income
Profit before tax
Net Profit
EPS (unadj)

Dividend Payout

Compounded Sales Growth:
Compounded Profit Growth:
10 Years:
10 Years:
5 Years:
5 Years:
3 Years:
3 Years:
*data –

After a difficult period of three years, company has seen a upward trend in last one year. The balance sheet and P&L sheet reflects the same.

Should you invest in #SREI secured Non-Convertible Bonds? 
It is a good debt investment  option with high yield and attractive tenor spread of 400 days, 3 years and 5 years. #NCDs are being offered by reputed infra-finance company, having a minimum investment requirement of Rs. 10, 000. The NCDs are secured, backed by assets, which means incase of default/ non-payment, assets can be liquidated to repay the debts.
The #coupon rate across segment is expected to be just above 1.5- 2 % from any bank FDs at this point of time. While a bank FD is offering 7.5% interest on yearly deposit, 400 days option is giving a good 1.5% extra return. Also, after a rough patch, the financial health of the company has improved thus interest payment ability. Brickworks has given it a thumbs up by giving it notch higher Rating of AA+ in the latest issue.

A person with moderate risk profile can invest a part of fixed income portfolio in this issue. Person in lower tax bracket will get to see higher return.

Risks in this issue – 

·         NBFC Business is particularly vulnerable to volatility in interest rates
·         SREI is in infrastructure sector, which has seen lull for over five years
·         Any increase in the levels of non-performing assets in loan portfolio, for any reason whatsoever, would adversely affect the business, results of operations and financial condition   
·         SREI derive majority/substantial of our revenues from our top 20 borrowers. Inability to maintain relationship with such borrower or any default and non-payment in future or credit losses of our single borrower or group exposure where they have a substantial exposure could materially and adversely affect business, future financial performance and results of operations

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