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  • What are the different ways to invest in fixed-income securities?

    What are the different ways to invest in fixed-income securities?

    Bank Fixed Deposit

    One of the most preferred investments of all times is a bank fixed deposit in India. This instrument claims to protect the investor’s capital and provide regular income on it. However, the rate of return has become competitive in the last few years, which makes this investment hard to beat inflation.

    Corporate Bonds

    Similar to the bank FDs, investors can lend their capital to the company in return for enhanced interest rates. In this, there are many choices available from AAA rated to junk bonds depending on the quality. It becomes pertinent for the investor to select quality bonds.

    Mutual funds in the form of debt or liquid

    The type of mutual fund which invests in the corporate debt or government securities. They provide a much higher interest rate in comparison with bank FDs. Apart from this, an investor can also gain from the bond price appreciation when interest rates fall.

    For the short time horizon investors, liquid funds make more sense than debt funds. Here, the funds can be parked for the matching period and earn higher returns.

    Arbitrage Funds

    The type of mutual fund which invests in the equity market by locking in any visible arbitrage opportunity. This can be done by locking the spot and future price and realizing the yield either by reversing or rolling over the future position.

    What are the benefits of investing in fixed-income securities?

    Investors can preserve their capital by investing in such securities. This is the low-risk investment where the invested capital is bound to be returned within a specific time horizon.

    These securities also help in creating a steady source of cash flow to the investor. Almost all the products from bank deposits to corporate FDs to debt mutual funds pay a certain amount of fixed return along with dividend rates.

    They are positioned higher in the capital structure of a company. This means, in times of bankruptcy, the bond investor will be paid higher in priority than a preferred stock or common equity investor.

  • Top Home Loan Benefits for Women in India

    Top Home Loan Benefits for Women in India

    Buying a home is a key financial decision and it becomes even bigger when taken by a woman. With them reaching the sky in their careers, there has been a significant rise in the number of women home-buyers in the last decade. 
     
    With this revolutionary shift, there are plenty of benefits and schemes provided to encourage this financial decision by women.
     
    1. Interest Rates: There are special interest rates and discounts available for women applying for a home loan from major banks and NBFCs. The application should be in the name of the woman or she should be a co-borrower of the same to enjoy these.
     
    2. Eligibility Criteria: There are simple eligibility criteria like being an Indian citizen between age 23 and 58 with 3 years of working experience.
     
    3. Lower Stamp Duty: As compared to others, women can enjoy a lower stamp duty of about 1-2% in most of the states. This is a significant amount when applied to the huge cost of the property.
     
    4. Benefits as a co-borrower: As a matter of fact, women are considered to be more trustworthy when applying for loans. This makes the sanction process easier and faster to deal with.
     
    5. Choose long payment tenure: There is also an option to select the longer payment period which ensures low EMIs and lesser stress on the finances. 
     
    6. Tax Benefits: They can enjoy the tax benefits in the form of home loan tax deductions of up to Rs. 3.5 lakhs with segregation of Rs. 1.5 lakhs under Section 80 C and Rs. 2 lakhs under Section 24(b).
     
    7. PMAY benefits: With Pradhan Mantri Awas Yojna, a government initiative, any home application applied with a woman as a co-owner is eligible for an interest subsidy up to Rs. 2.67 lakhs.
  • Top 9 fixed income securities in India

    Top 9 fixed income securities in India

    The investors vary in market fluctuations and seeking fixed returns are best suited to invest in fixed-income securities. The Indian government along with corporates have been supportive enough to create multiple options of such characteristics to fulfill the required needs. 

    The below-mentioned products are the top 9 investment options available in India for a stronger and safer investment portfolio.

    1. Public Provident Fund: The fund is backed by Government which provides a competitive interest rate. The interest rates, principal amount, and maturity are all exempt from taxes making them very popular among investors.

    2. Sukanya Samriddhi Yojana: This is one of the fantastic investment tools that enhance financial inclusions. With the deposit amount as low as Rs. 250, it provides attractive interest rates for the girl child. 

    3. Senior Citizen Saving Scheme: The older group can invest for a period of 5 years and enjoy a regular flow of income with interest.

    4. Pradhan Mantri Vaya Vandana Yojana: This is a pension plan sort of investment that gives a guaranteed return of 8%p.a for 10 years.

    5. Debt Mutual Funds: The mutual funds that invest in the debts of organizations like Government securities, corporate bonds, commercial paper, treasury bills, etc.

    6. Bank Fixed Deposits: One of the oldest and safest methods to yield a specific rate of return is through bank FDs. However, currently, the rate of return has dropped significantly making this less attractive.

    7. National Saving Certificates: These are 5-year post office saving scheme that offers 6.8% p.a currently. The interest for the first 4 years is reinvested while that of 5th year is taxable.

    8. RBI taxable bonds: These are government-backed bonds that are providing 7.75% p.a currently for a duration of 7 years.

  • What is a Private Client Group and How Do They Allocate Assets?

    What is a Private Client Group and How Do They Allocate Assets?

    If given a choice, would you prefer a ready-to-wear suit or a bespoke one? Most of us would choose the latter for one simple reason: customization to meet our needs. In the world of wealth creation, such a professionally customized portfolio service is termed a Private Client Group.

    This service is offered by banks or professional advisory groups and provides an exhaustive collection of research-based advisory services tailored to each client’s needs. It is an exclusive service designed to fulfill the exceptional investing requirements of privileged customers or high-net-worth individuals with capital of 25 lakhs and above.

    The basket of investment options can include equities, derivatives, mutual funds, IPOs, or a combination of these asset classes to maximize market opportunities. The achievement of specific goals is facilitated by optimal asset allocation, which depends on two broad factors:

    Time: The primary factor is the time frame within which the investor seeks to exit. If an investor has a long-term horizon, they can opt for higher potential returns with a potentially higher risk. Conversely, for a short-term investor, investment choices must be evaluated based on market volatility.

    Risk Tolerance: Risk tolerance determines the extent to which the portfolio can withstand risk. This can be assessed based on the investor’s economic/financial ability to tolerate risk and their emotional/psychological capacity to handle the unforeseen.

    The major objective behind asset allocation is to mitigate losses arising from one asset class in the portfolio with gains in another. In short, the portfolio of such superior clients is well-equipped to handle risks in the form of a bear market or any sector-specific recession.

    Conclusion

    Private Client Groups provide high-net-worth individuals with personalized investment strategies that focus on optimizing asset allocation based on time horizons and risk tolerance. By tailoring portfolios to meet specific needs and goals, they help clients navigate the complexities of financial markets, aiming to preserve and grow wealth even amidst uncertainties.

  • Mutual Funds and its importance in daily life

    Mutual Funds and its importance in daily life

    It was Madhu’s 25th birthday, but she was far away from home. She wasn’t very familiar with her new friends in the class, so she dropped her celebration plans and decided to return home early. But when her class friends got to know about her birthday, do you know what happened next? Of course, they bumped into her and excitedly asked “Where is the Party today?”

    no-money-no-party

    It was indeed a good reason to meet up and get to know her new classmates in the university. So, she anxiously agreed but realized she had no sufficient money to feed her friends for the party. Disappointingly, she changed her plans and told her friends that ‘No Money, No Party.

    Mutual Fund

    There was this new restaurant opened in their neighborhood that served delicious burgers. But it looked like the plans got canceled. But, No, it wasn’t like this. There were 10 people including Madhu, and they all mutually decided to pour in little money, and together they paid while also enjoying the burgers.

    The Connection!

    So, what we are trying to explain to you is Mutual Funds are like a birthday party, but there is no one host in it. Everyone pays some amount of money that gets collected and is further invested in stocks, money market instruments, assets, and bonds by a professional fund/money manager on behalf of you.

    Also, Mutual Funds has a specifically defined portfolio designed according to your investment requirements. So you gain what you desire. It is both a short-term and long-term investment that offers incredible financial benefits to you. When you plan to invest in Mutual Funds, you will be asked these questions that help the analyst assist your risk-assessment capabilities and develop a portfolio.

    Invest in Mutual Funds

    invest-in-mutual-funds

    How much is your risk exposure?

    – It means how much money are you willing to invest in Mutual Funds.

    How much is your time frame?

    – It emphasizes short/long term investment or an individual time horizon respectively.

    What is your age?

    – There are different kinds of Mutual Funds like equity funds that fit best for people who are in the 20-45 age bracket and retirement funds for people who fall into the 60-70 age bracket. So, again age is a major factor in Mutual Funds, it is always great if you start young, but even if you start a bit older, it will still give you a lot of leverage.

    How do you want to invest?

    – SIP or lump sum are two ways you can invest in Equity Mutual Funds. SIP or Systematic Investment Plan is a way through which you can contribute small but regular amounts. Both of these provide leverage so that they can help you analyze which is more suitable for you.

    Portfolio development is extremely important, and thus you must answer these questions with clarity. You can invest into several categories based on your investment purpose that matches your portfolio. Your investment is diversified across different securities, and you can easily start with low investment amounts. You can even start with investing Rs. 100 only!

    In simple words, when you invest or buy a unit of Mutual Funds (also called a share of Mutual Funds) you are investing into that share’s portfolio value. It is similar to evaluating the performance of a share. This is a reason why the price of the Mutual Funds is called NET ASSET VALUE or NAV.

    NAV keeps on changing every day because of the volatile nature of the market value of the assets. So NAV is also like a navigator that helps you understand the performance of the scheme you have invested in. It can give you a long-term analysis for further speculations.

    Remember that restaurant where Madhu and her friends enjoyed burgers? In that restaurant’s menu, there were more items to give a variety of choices to the customers.

    happy-birthday-madhu

    It is similar to Mutual funds investment, here, you get to choose from different types of Mutual Funds available in the market like open-ended or close-ended funds. Then comes equity funds which also include sector-specific or index funds. Then debt funds or fixed-income funds, balanced funds, tax-saving funds, and retirement funds. These are some significant Mutual Funds that exist in the market today.

    Also, some great advantages that are offered by this kind of investment are that they are easy to access because they are liquid investments, professionally managed by a proficient investor, provide higher expected returns with diversified investment.

    Mutual Funds are inclined towards growth investing, but we always urge you to read the complete details before making a move.

    Also, do you know what advice Madhu’s friends give her in the cafe?

    It was to start investing in mutual funds so that Madhu can enjoy her next birthday with her own savings from the returns of mutual funds without asking for help from anyone. And make her own choices and enjoy financial freedom just like she wishes to.

  • Income Tax Return: Settling The Old vs New Tax Regime

    Income Tax Return: Settling The Old vs New Tax Regime

    The Finance Minister Ms. Nirmala Sitharaman introduced the Union Budget on 1st February 2020 with the aim to boost the Indian economy.

    New vs Old Tax Rates for Personal Tax

    Income Tax Slab for New FY 2020-21 New Tax Rate Old Tax Rate
    1). Upto Rs 2.5 Lakhs Exempt Exempt
    2). Rs 2.5- Rs 5 Lakhs 5% 5%
    3) Rs 5- Rs 7.5 Lakhs 10% 20%
    4). Rs 7.5 -Rs 10 Lakhs 15% 20%
    5). Rs10- Rs12.5 Lakhs 20% 30%
    6). Rs12.5-Rs 15 Lakhs 25% 30%
    7). Above Rs 15 Lakhs 30% 30%

    If an individual wishes to avail the new tax rates as announced by Budget 2020, he/ she will not be eligible to claim the following tax benefits:

    1. Leave travel concession as contained in clause (5) of section 10.
    2. House rent allowance as contained in clause (13A) of section 10.
    3. The allowances as contained in clause (14) of section 10.
    4. Standard deduction of Rs. 50,000 u/s 16.
    5. Employment/professional tax deduction as contained in section 16.
    6. Interest under section 24 in respect of self-occupied or vacant property referred to in sub-section (2) of section 23. (Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law).
    7. Any deduction under chapter VI-A ; [except 80CCD(2) – NPS Contribution by the employer.

    The tax rates have been reduced but with the new tax rates one cannot avail around 70 tax exemptions and deductions out of more than 100 which were earlier can be availed. So, basically, one has to forego all of these. However, it depends upon person to person which tax rates are beneficial to go ahead with.

    Let us understand this with the help of example:

    Salary 6 lakh: The one can invest 50 K in 80C, mediclaim, and others to get in 5 lakh range and hence have to pay no income tax. (50K will be deducted in Standard Deduction)

    Salary 7 lakh: Either pay 32.5 K with new slab or invest 1.5 lakh under 80C and others to save the tax (50K will be deducted in Standard Deduction)

    Salary 8 lakh: Either pay 40 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS to save the tax, (50K will be deducted in Standard Deduction). Still have to pay 22.5K for tax

    Salary 9 lakh: Either pay 60 K with new slab or invest 1.5 lakh under 80C and others, 50K in NPS, (50K will be deducted in Standard Deduction), and still pay 42.5 K

    Above calculations suggest that old tax rates with exemptions and deductions is a better option for those individuals having higher income bracket

    If someone has a home loan, education loan, mediclaim for family or parents, certain other deductions will be available in the later tax slab. Hence, from this year now one has to calculate their total income as well as deductions and have to decide whether they will invest money for a lock-in period or can get better returns after paying income tax through new slab.

    It is important to note that post the announcement of new tax rates, Individual will have more cash in hand at his/her disposal at the end of every month or year which was primarily the purpose of the government to boost the consumption thereby taking India into the $5trillion GDP goal.

    Benefits of New Tax Rates

    • Optional for Individuals for opting old or new rates.
    • Lower Income earners are benefitting from new tax rates
    • National Pension System (NPS) i.e. Deduction under 80CCD(2) will continue
    • DDT abolished

    Source: https://www.indiabudget.gov.in/

  • What is an IPO and how does it work?

    What is an IPO and how does it work?

    An initial public offering, or IPO, is the very first sale of stock issued by a company to the public. Prior to an IPO, the company is an unlisted company, with a relatively small number of shareholders made up primarily of early investors (such as founders, their families and friends) and professional investors (such as venture capitalists or angel investors). The public, on the other hand, consists of everybody else – any individual or institutional investor who wasn’t involved in the early days of the company and who is interested in buying shares of the company.

    The Initial Public Offering (IPO) Process

    The entire process of IPO India is regulated by the Securities and Exchange Board of India (SEBI) to prevent the possibility of fraud and safeguard investor interest.

    Step 1: Selection of Investment Bank

    The first thing that company management must do when they have taken a unanimous decision to go public is to find an investment bank or a conglomerate of investment banks that will act as underwriters on behalf of the company. Underwriters buy the shares of the company and resell them to the general public. The company must also hire lawyers that can guide them through the legal maze that an IPO setup can be. It must be ready with detailed financial records for intensive fiscal health scrutiny that SEBI would perform.

    Step 2: Preparation of Registration Statement

    The securities and exchange board of India (SEBI) regulates the entire process of investment via an IPO in India. A company intending to issue shares through IPOs first registers with SEBI. SEBI scrutinizes the documents submitted, and them only approves it. It must also see that registration statement fulfils all the mandatory requirements and satisfies all rules and regulations.

    Step 3: Getting the Prospectus Ready

    While awaiting the approval, the company prepares its prospectus, in which it mentions that SEBI’s approval is pending. This prospectus is meant for prospective investors who would be interested in buying the stock.

    Step 4: The Road Show

    Once the prospectus is ready, underwriters and company officials go on countrywide ‘road shows‘, visiting the major trade hubs and promote the company’s IPO among select few private buyers. They get a feel of investor response through these tours and try to woo big investors.

    Step 5: SEBI Approval & a Go Ahead

    Once SEBI is satisfied with the Registration Statement, it declares the statement to be effective, giving a go-ahead for the IPO to happen and a date to be fixed for the same. Sometimes it asks for amendments to be made before giving its approval.

    Step 6: Deciding on Price Band & Share Number

    Once approved, the company decides two things; it fixes the price of the share and the number of shares it plans to issue.

    There are two types of IPO issues: fixed price and book building. In the former, the company decides the price of the share in advance. In the latter, the company gives you a range of prices. You then need to bid for shares within this range.

    Step 7: Available to Public for Purchase

    After deciding on the type of issue, the company makes the shares available to the public. Investors then submit applications showcasing their interest in buying the shares. Once the company gets subscriptions from the public, it proceeds to allot the shares.

    Step 8: Listing

    It involves listing it on the stock market. After the shares are issued to investors in the primary market, they get listed in the secondary market. Trading in these shares happens daily.

    Conclusion

    In summary, an IPO is a crucial step for a company transitioning from private to public ownership, offering shares to the general public for the first time. The process, regulated by SEBI in India, involves careful preparation, from selecting underwriters and submitting detailed financial records to finalizing the price and number of shares. Once approved, the company’s shares are offered to the public, eventually being listed on the stock exchange. For investors, participating in an IPO can be an opportunity to buy into a company’s future growth right from its initial market debut.