Go directly to: Tax Free Bonds vs Infra bonds | Who should invest in tax free bonds?

​Tax Free Bonds vs Long Term Infrastructure Bonds Tax free bonds differ from Long Term Infrastructure Bonds – Investments made in Long Term Infrastructure Bonds such as SREI Infrastructure Bonds – are exempt from tax upto a limit of Rs 20000 under Section 80 CCF.

What is the meaning of Non convertible debentures or NCDs?

A debenture is a bond issued by a company and not backed by a physical asset or collateral. Some debentures allow the holder to exchange the debenture for company stock. However Non Convertible Debentures are those which cannot be converted to company equity or stock.

Go directly to: Benefits of NCDs | Taxation on NCDs | Muthoot NCDs

​​​​Disadvantages of Non Convertible Debentures

NCDs are more riskier than bank fixed deposits . While Bank FDs are secured upto a limit of Rs 1 lakh, NCDs do not come with any such assurance.

Non Convertible Debentures are not as liquid as a Bank Fixed Deposit. They come with a lock in period. Though NCDs are listed on stock exchange and can be sold, its not as easy as it sounds. Infact if there isnt much trading happening in the NCD, the bonds might have to be sold at a loss.

Taxation of NCDs The interest earned from Non Convertible Debentures is taxable in the hands of investor. This means that while no tax is deducted at source, the investor is liable to pay tax on the interest income himself. So if a NCD gives 12 percent returns, post tax yield, if you fall in 30% tax bracket, will be 8.4% only.

Source: Economic Times

Muthoot NCDs Muthoot financiers have a history of almost 72 years and are the largest provider of Gold Loans as on March 2010. NCDs from Muthoot Finance are open for subscription till 7th Jan 2011. They have been given a rating of AA- by ICRA and CRISIL which implies that these instruments carry low risk and are hence safe. Face value of a single unit of in Rs 1000. Minimum application should be for Rs 5000. The NCDs can be purchased for a time period of 24 , 36, 60 and 66 months. Interest rate is 13 % for a period of 24 months. To know more more details about Muthoot NCD and for a comparison with Bank FDs click here ​Its advisable to invest in a NCD only if you can wait till the end of maturity period. Also invest in small amounts rather than making a lump sum investment. Check the rating of the company issuing the NCD. Invest only if the company has sound financials. Also read BusinessLine’s take on Muthoot NCDs

]]> http://insureinvest.in/muthoot-ncds-non-convertible-debentures-from-muthoot-financiers.html/feed 0 http://insureinvest.in/80ccf-long-term-infrastructure-bonds-2011.html http://insureinvest.in/80ccf-long-term-infrastructure-bonds-2011.html#comments Wed, 07 Dec 2011 18:00:09 +0000 admin http://insureinvest.in/?p=831

What are Tax Saving Infrastructure bonds? The purpose behind infrastructure bonds 2011 in India is to meet the long-term needs of infrastructure development in India. The money raised through these bonds would be primarily invested in infrastructure projects – building of roads, ports, airports, power plants, etc. These investments are of long term duration, and therefore, the bonds too are expected to have long tenures – 5 to 10 years.

Also these bonds can be issued only by certain government and Reserve Bank of India (RBI)-approved entities.

Go directly to: Benefits of 80 ccf infrastructure bonds | Drawbacks of Infrastructure Bonds

What are the benefits of investing in tax saving infrastructure bonds? One benefit of these long term infrastructure bonds is that it allows you to enjoy tax benefit upto a limit of Rs 20000 under Sec 80 CCF. This limit is over and above the 1 lakh limit provided under Section 80 C of Income Tax Act. In addition, these investments are comparatively safer than ones in Stock Market.

• The money to be invested
• The amount which will be received on maturity
• Income tax benefits on investing in the insurance policy

Most insurance policies are so complex that individuals cannot understand them. And this usually backfires, as buying an insurance policy is a long term contract. One usually continues the policy even if it does not meet his or her financial goals. The commission earned by the insurance agent is based on the amount of premium. Hence, agents push for high premium policies by using financial jargon. Once bought, the chances of rectifying the error are very low and the cost of discontinuing the policy is high. Hence, changes introduced in the DTC were necessary to safeguard the overall financial security of investors.

DTC: A Step in the Right Direction With effect from 1st April, 2012, the direct tax code will compel the tax saver to change the objective of buying insurance policies. First, the insurance premium will be eligible for tax saving if the risk cover is twenty times or more. Second, the overall limit of deduction under Section 80 C has been reduced from Rs. 1,00, 000/- to Rs 50,000/-.

This change in tax law will automatically safeguard the taxpayers, who were being sold insurance as an investment for tax saving. Now, the investment in insurance policies will be more in term plans than ULIP or endowment.

This article has been contributed by Mr Sudhir Kaushik from TaxSpanner. Sudhir brings domain knowledge of income tax laws and their compliance difficulties faced by individuals.  To read the articles written by Sudhir, click here.

]]> http://insureinvest.in/dtc-how-policy-change-impacts-buying-of-insurance-policies.html/feed 0 http://insureinvest.in/ppf-interest-rate-2011-ppf-calculator.html http://insureinvest.in/ppf-interest-rate-2011-ppf-calculator.html#comments Sat, 12 Nov 2011 04:35:34 +0000 admin http://insureinvest.in/?p=805
In today’s volatile conditions how many of us take the risk of investing in markets? Most of go for safe havens like Fixed Deposits but more often than not interest rate of Fixed deposits is not able to beat inflation. Read more on Interest Rate on Fixed Deposits.

Go directly to: Tax Benefits of PPF | PPF Calculator

As per a recent government order, ppf account interest rate will be raised from existing 8% to 8.6%. Also the ceiling on investment under Public Provident Fund is going to be raised from current Rs 70,000 to Rs 1,00,000.

Fixed Deposits vs Public Provident Fund

PPF vs FD

PPF interest rate in 2010 was 8%. In addition the interest earned is tax free is as well. So the effective rate of interest rate on Public Provident Fund was 8%. Now let us compare this with interest earned on Fixed Deposits. Effective rate from fixed deposit can be calculated as : (1-TR)*ROI, where, ROI is Rate of Interest on Fixed Deposit and TR is Applicabe Tax Rate.

So as you can see hardly any other fixed income investment option gives such a risk free interest rate.

PPF Tax benefit The amount invested in Public Provident Fund is eligible for tax deduction upto a maximum of Rs 70,000 under Section 80 C of Income Tax Act (the limit is going to be raised to Rs 1,00,000 soon). Also the interest income earned is tax free. Hence PPF provides dual tax benefits. If you have opened an account in the name of your spouse or minor child along with a PPF account of your own, then the amount invested in two accounts is clubbed together.

In other words, the total amount deposited in your own PPF account and the account of your minor child can’t exceed Rs 70,000 in a Financial Year. But you can still make additional deposits beyond the limit of Rs 70,000 in the account of your spouse or your major children and accordingly you can claim Rs 1 lakh tax deduction u/s 80C of IT Act. The only disadvantage with Public Provident Fund is that the money gets locked for a period of 15 years. But that can also be turned into an advantage if you open the account early. That is, say you opened the account when you started your career. Now by the time your son or daughter are ready for marriage, your PPF account would have matured thereby providing you very useful and tax free savings. To determine PPF returns and maturity value after different time periods use following PPF calculator. PPF interest rate calculator How is interest on PPF calculated in a financial year? Public Provident Fund interest calculation is a bit complicated. Interest is calculated on monthly basis but compounded on annual basis only. Also no interest is paid for a particular month if the amount is deposited after 5th of the month. Use the calculator below to know the interest income earned from your PPF account in a financial year.

]]> http://insureinvest.in/ppf-interest-rate-2011-ppf-calculator.html/feed 0 http://insureinvest.in/debt-funds-the-way-out.html http://insureinvest.in/debt-funds-the-way-out.html#comments Mon, 31 Oct 2011 04:49:48 +0000 admin http://insureinvest.in/?p=800 Hello people, I had created a poll last time, asking you about various ‘risk free’ yet ‘yields oriented’ ways of investment you know about. One of the opinions (infact the only opinion ) was to invest in Gold. Well my dear friend, Gold in these days is also not an attractive investment option. With economy on the path to recovery, more and more funds are being shifted to equities from gold, hence eventually gold prices are subject to fall in coming months (Disclaimer:This is an entirely personal though point).

Their is another option you can consider. Its called a debt fund. Lets know more about it.
A Debt Fund is a type of mutual fund that whose core holdings are fixed income investments such as short-term or long-term bonds, securitized products, money market instruments or floating rate debt.

Bonds? Secuirities??? blah, blah..didnt get a word. Well dont worry, we will try to make it as crystal clear as possible.
Securities are usually a government debt obligation (local or national) backed by the credit and taxing power of a country with very little risk of default. This includes short-term Treasury bills, medium-term Treasury notes, and long-term Treasury bonds. While bonds or debentures are backed only by the general creditworthiness and reputation of the issuer. Both corporations and governments frequently issue this type of bond in order to secure capital. Debentures have no collateral. Bond buyers generally purchase debentures based on the belief that the bond issuer is unlikely to default on the repayment. An example of a government debenture would be any government-issued Treasury bond (T-bond).

In short, just like fixed deposits are considered a safe way of investment and based on the belief that the bank will be able to pay back the amount when needed, similarly debt funds are funds which invest in instruments which have very low chances of defaulting, and at the same time, they are aimed at increasing the invested amount. The main investing objectives of a debt fund will usually be preservation of capital and generation of income. So how do these debt funds provide increased returns?

Debt funds buy debt instruments at a certain price and then sell them. The difference between the cost and sale price accounts for the appreciation or depreciation in the fund’s value.

A debt instrument’s market price depends on the interest rates of its underlying assets and also on any upgrade or downgrade in the credit rating of its holdings. Market prices of debt securities swing with movements in interest rates. Let’s assume your debt fund owns a security that yields 10 per cent interest. If interest rates in the economy fall, new instruments that hit the market would reflect the changed interest rate scenario and offer lower interest rates. This would result in an increase in your fund’s instrument’s price as the higher yield would raise the instrument’s value. As a result of the increase in the debt instrument’s value, your fund’s NAV would also rise.

Also, Similar to the interest that a bank fixed deposit gives during its tenure, debt funds also earn a regular interest from the fixed income securities that they are invested in.

This income gets added to a debt fund on a daily basis. If the interest comes, say, once a year, it is divided by 365, and the debt fund’s NAV goes up daily by this amount.