Union Budget 2013-14 - Some Key points to notice which will impact Investing, spending, Investors and Investment Advisers

R.G.E.S.S Liberalized

The much talked RGES Scheme (Rajiv Gandhi Equity Savings Scheme) has now been liberalized. Now, eligible new investors can invest maximum of Rs 50000/- for 3 years continuously and get 50% of investment amount or maximum of Rs 25000/- tax benefit over and above Sec-80C. Earlier, they were allowed to invest for one time only in equities and Mutual fund RGES schemes . Also, eligible conditions have also been modified. Now, investors upto an annual income of Rs 12 lakh will be able to invest. Earlier, it was capped at Rs 10 lakh (annual income).

Mutual Fund Advisors 

A.M.F.I registered mutual fund advisors have been allowed to become brokers on Stock Exchanges for Mutual Fund division.

STT Reduced and CTT introduced

S.T.T on mutual fund (MF) and exchange traded fund (E.T.F) redemption's at fund counters is slashed to 0.001% from 0.25%; S.T.T on M.F/E.T.F purchase and sale on exchanges is reduced from 0.1% to 0.001%, only on the seller.

If you are derivative trader in the equities market, you should be happy as S.T.T on futures has come down 0.017% to 0.01 % and if you are derivative trader in commodities market, you have to pay C.T.T (Commodities Transaction Tax)at the same rate applicable to equity futures. There was no C.T.T earlier.

D.D.T paid by Debt Funds

Dividend distribution tax (DDT) paid by debt funds has been increased to 25% from 12.5%.

DDT is the tax that debt mutual funds (MFs) pay on the dividend income distributed to retail investors. Although dividends from mutual funds are tax-free in the hands of the investor, your debt fund deducts DDT from the income earmarked for distribution, and gives the rest to investors. At the moment, liquid funds pay a DDT of 25% (plus surcharge and cess). All other types of debt funds pay 12.5% (plus surcharge and cess) on income distributed to retail investors.

According to the budget proposals for the year starting 1 April 2013, DDT paid by all types of debt funds (liquid funds and other debt MFs) to retail investors will be 25%.

ETF 

Pension and provident funds will be able to invest in equity markets through ETF route.

DTC Put on Hold

Until further clarity, Direct Tax Code (DTC) is being put on hold. So, Equity Linked Savings Schemes (ELSS) will remain a tax saving option for the investors.

Infrastructure Debt Funds

Two new IDFs will launched in the coming months.

Tax Free Bonds

More tax free bonds will be launched to tune of collection of Rs 50,000 for 2013-14.

Income Tax Changes

Tax credit of Rs 2,000 for a tax-payer in the tax bracket of Rs 2-5 lakh. Otherwise, no changes have been made to the tax slab.

For example:- if your tax payable amounts to Rs 10,000, your liability will be limited to Rs 8,000.

The income exempt from tax stands increased from Rs 2 lakh per annum to Rs 2.2 lakh per annum, implying a tax-saving of Rs 2000 only. 

Super rich, i.e. those earning over Rs 1 crore per annum will have to bear an additional surcharge of 10% taking their effective tax-rate up from the existing 30.9% to 33.9%. Also 5 to 10 per cent surcharge on domestic corporate's whose income exceeds Rs 10 crore a year. 

The impact on income tax post the Budget 2013 is thus as illustrated... 

Taxable Income (Rs)	INDIVIDUALS - BOTH MEN & WOMEN (Upto 60 years of age)				TAX (SAVED) / PAYABLE
	TAX PAYABLE (Including Cess)
	Now		Post-Budget
	Tax-rate	Amount	Tax-rate	Amount
200,000	0	-	0	-	0
220,000	10.30%	2,060	0	-	(2,060)
250,000	10.30%	5,150	10.30%	3,090	(2,060)
300,000	10.30%	10,300	10.30%	8,240	(2,060)
500,000	10.30%	30,900	10.30%	28,840	(2,060) - Only those with income upto Rs 5 lakh make a humble saving of Rs 2060
500,000	10.30%	30,900	10.30%	30,900
750,000	20.60%	82,400	20.60%	82,400
800,000	20.60%	92,700	20.60%	92,700
900,000	20.60%	113,300	20.60%	113,300
1,000,000	20.60%	133,900	20.60%	133,900
1,200,000	30.90%	195,700	30.90%	195,700
1,500,000	30.90%	288,400	30.90%	288,400
2,000,000	30.90%	442,900	30.90%	442,900
2,500,000	30.90%	597,400	30.90%	597,400
3,000,000	30.90%	751,900	30.90%	751,900
3,500,000	30.90%	906,400	30.90%	906,400
4,000,000	30.90%	1,060,900	30.90%	1,060,900
4,200,000	30.90%	1,122,700	30.90%	1,122,700
4,500,000	30.90%	1,215,400	30.90%	1,215,400
5,000,000	30.90%	1,369,900	30.90%	1,369,900
9,900,000	30.90%	2,884,000	30.90%	2,884,000
10,000,000	30.90%	2,914,900	30.90%	2,914,900
10,100,000	30.90%	2,945,800	33.99%	2,948,890	3,090
11,000,000	30.90%	3,223,900	33.99%	3,254,800	30,900
12,000,000	30.90%	3,532,900	33.99%	3,594,700	61,800
13,000,000	30.90%	3,841,900	33.99%	3,934,600	92,700

Inflation Indexed Bonds

Ministry of Finance will co-ordinate with RBI in launching these Inflation Indexed Bonds.

Home Loan

Any first home loan taken before April 2014 (up to an amount of Rs 25 lakh) will get an additional deduction of Rs 1 lakh. So, the total deduction amounts to Rs 2.5 lakh now for first year only for person buying house and taking loans in 2013-14.

TDS / Inheritance tax

An inheritance tax / T.D.S of 1 per cent on transfer of all immovable property transactions of over Rs 50 lakh.

Insurance

If you are living in a tier II city and find it difficult to find an insurer near your place, the budget has some good news for you. Insurance companies can open officers in tier II cities without prior permission from Insurance Regulatory and Development Authority. LIC and GIC to open office in all locations where population is more than 10000 by end of F.Y 2014.Banks can now become insurance broker to sell multiple insurance companies products.

Union Budget 2013-14 has raised the eligibility cap on life insurance premiums to 15% for policyholders with disabilities or specified ailments, noting that some policies meant for such individuals exceed the existing limit of 10%. If policies do not meet the eligibility criterion, the amount of deduction allowed will be restricted to 10% (15% in case of persons with disabilities) of the sum assured and the maturity proceeds will be taxed.

In order to make the process of buying an insurance policy smoother, the know your customer (KYC) process will not be needed for a bank customer, who has already done his KYC with the bank.

These all steps will ensure penetration and availability of Life and Health insurance to more people in the country

Duty Free shopping benefits 

If you are going abroad, here is some good news for you. Duty-free shopping limit is hiked to Rs 50,000 for a male passenger and Rs 1 lakh for a female passenger.

Service tax new voluntary compliance encouragement

If you are a service tax evader, you should make use of the new voluntary Compliance Encouragement Scheme announced in the budget. You can file a declaration of service tax due since 1.10.2007 and make the payment in one two installments before prescribed dates. You don't have to pay interest and penalty and other consequences will be waived.

Eating out will be dearer now

All air conditioned restaurants and eateries will now levy 12.36% service tax now previously it was only charged at air conditioned restaurants / eateries which use to serve alcohol were charging this.

Manish

Investing made easy - 12 easy tips to start a wise investing for wealthcreation for individual investor

Investing made easy - 12 easy tips to start a wise investing for wealth creation for individual investor

1- A good start, well planned keeping all financial aspects well thought off is always important for start of first step for big success for wealth creation:- 

Individual investors at start, work out and list down your current monthly expenditure, current and future liabilities, estimate your current, near term and future cash flows, try to factor in and estimate unforeseen contingency and emergency needs and their expense/cost, estimate future value of your current lifestyle and cost of living as per today's expenditure and set & conclude future goals and aspiration for better life style and comfort for you and family. Disposal of all liabilities & responsibilities before retirement, acquisition and procurement of all assets, fulfill all aspirations, achieve and maintain desired life style and all comforts in working life itself, comprehensive post retirement life planning and accumulation of appropriate wealth creation for happy life should be at the core of start to the creation of any financial plan by you. 

2- Risk assessment, Risk mitigation and to get coverage for all type of risk identified:- 

To your financial plan layout one should start with assessing all your current and future risk & liabilities. Try to minimize them first and on priority to start. Risk can be bought down significantly and can be minimized to very large extent by buying and taking adequate risk cover through Insurance - Life & General. One can buy Life Insurance for self, family, spouse, children's and dependent parents (term or whole life, personal accident and health insurance cover policies). In General Insurance, policies can be bought for minimizing risk for movable, unmovable and precious assets possessed by any Individual like car, house, safety from fire, theft, flood, natural calamities and jewellery etc. Minimum life insurance advised - 10X to 15X times sum assured cover should be bought of your total cash in hand of income per year. Adequate amount of other insurances like health cover, personal accident & disability cover, house protection, fire & theft cover, car cover etc should be also bought. Buy insurance in young age at low cost of premium and maximize your risk cover / sum assured. Individual's also enjoy I.T section 80C and 80D tax benefits on life and health insurances premiums paid in every financial year. 

3-Nil / very low Liabilities is of utmost importance for wealth creation:- 

All type of loans (Personal, Car, House, Education etc.) availed, if any should be either closed or minimized and paid of as first priority is key step for making financial plan and investment plan for successful wealth creation. 

4- Contingency or Emergency need Funds:- 

Contingency or emergency savings fund are very important to start financial plan. Its always advisable that = >6 -12 months income to be kept aside in savings bank or Mutual funds liquid / cash funds at all time

5- Most individual in India follow this formula in day to day life:

Monthly Savings = Monthly Income - Monthly Expenditure 

whereas it should be replaced, corrected with, practiced and followed as:

Monthly Expenditure = Monthly Income - Monthly Savings

6- Being disciplined pays and create wonders to give pleasant surprises:- 

Disciplined approach towards investing in set frequencies of time should be practiced like weekly or fortnightly or monthly or quarterly or half yearly investing in different asset classes through available Systematic Investing Plans or Recurring Investing Plans. Specially in purchasing, buying and accumulating risky assets, like stock, shares and direct equities or equity Mutual funds, SIP and RIP is the best way to enter and do rupee cost averaging and minimize risk and maximize returns over time. Start investing in early age for longer period of times  will help you create more wealth. 

7- Risk and Rewards assessment as per your best of capacity and understanding:- 

Try to identify medium to less risk and medium to high return products and assets to invest. Diversify and do proper asset allocation while investing in equities, debt (Fixed income), cash/savings, fixed deposits/bonds/gilts/F.M.P's, Gold/Gold E.T.F's/Gold funds, commodities, real estate, land etc.

8-  Try to maximize your Net / Real returns:- 

Consider effect of annual inflation in your country and of the tax slabs you fall into / tax you pay to government on your total income or gains, while looking to work out and shortlisting products. As these 2 things(Inflation and Income tax or capital gain tax etc.) minimizes your return on investments(R.O.I). Inflation and taxes eat and bite quietly into your R.O.I and wealth on a regular and  frequent basis like a silent killer and bring down your purchasing power year after year. Portfolio re-balancing and churning also have tax and transaction cost with it so make sensible decisions and try to mitigate these.

9- Try to get multiplier and compounding effect on your investments (High returns and compounding for more and more number of year):- 

Always try to follow and achieve rule of compounding (Compound Interest Formula) / annualized return as R.O.I instead of chasing and getting simple annual interest for one or couple of year on your principal amount. Invest for longer tenure and achieve higher compounded annualized returns on your investments. Higher the compounding more the wealth creation means for example - monthly compounding will yield highest return, quarterly compounding will yield second highest returns, half yearly or semi annual compounding will yield third highest returns and annual compounding will yield you forth best returns. So idea is monthly compounding gives maximum wealth creation in comparison to quarterly, semi annual / half yearly or annual compounding.

P = principal amount (the initial amount you borrow or deposit)

r  = annual rate of interest (as a decimal)

t  = number of years the amount is deposited or borrowed for.

A = amount of money accumulated after n years, including interest.

n  =  number of times the interest is compounded per year   

9- Credit risk and Liquidity risk are post investment risk, need to be mitigated with wise investment decision making:- 

Check credibility and pay back credentials of issuer or borrower or fund or product provider from relevant source's or regulators before you invest. Also check liquidity efficiency of the products you buy because in case in between you need liquidity and you are stuck in illiquid products it will hurt you when utmost in need.

10- Follow thumb rules and keep things simple and effective:-

Invest as thumb rule (75-Age in % of your total portfolio-Indian context) in equities (Directly or through equity Mutual funds) and then put remaining portfolio's 50% in debt/long bond/G-sec or GILT Fund/ Income funds / F.M.P's/F.D-1 year plus/post-office schemes/tax free bonds or tax saving schemes-p.p.f. etc. and remaining should be in cash, commodities  gold, real estate etc. With every passing year and growing older and wiser in life cut down your equity/other high risk portfolio by 1% or more and move that to debt or cash as wise saying goes. Re-balancing and realigning the asset allocation is very important on set frequencies.

11- Start saving early, save more and more, save regularly and save for longer period of time (follow basics and keep it simple and effective):- 

Increase allocation to savings and investment and diversify properly on your every increment in income or on receipt of wind fall gains regularly and in same proportion of increment or gain. Control your greed in secular bull run and upward momentum in capital markets and kill your fear in all bear run or stress or recessions or bad sentiments in capital markets or economy. Try to stick at all times with diversification and asset allocation which suits you the best and look for overall returns on your investments or net-worth. Do not chase high returns or momentum of one or two assets at one given point of time. Try to be away and aloof from herd mentality and have patience and belief on your asset allocation and needs. Too much information from too many sources and current mass madness trends in and around divert you to wrong decision making often. Do build and stick with portfolio which suits your need the best and meets all your future goals and create appropriate wealth for you at accurate times - when you need it?, At the age and time of event you need it and how much you need it?

12- Take professional advise and do periodic portfolio review's:-

Regular reviews and doing portfolio re balancing is of utmost important at set frequencies with discipline with minimal or negligible cost and tax impact. Try and hire and induct a good certified financial planner (C.F.P / I.R.D.A / N.I.S.M-C.P.F.A / N.I.S.M-MUTUAL FUND CERTIFIED ADVISER etc.certified people) or adviser for your entire financial planning and give him / her your portfolio and seek his / her professional advice. See your appointed adviser / planner is customer focused and not product focus. He/she should make portfolio as per your interest, requirement, cash flows, future needs and goals for wealth creation and cut down to almost zero your all risk, tax and liabilities etc.

I BELIEVE WEALTH CREATION IS NO ROCKET SCIENCE. IT IS ALL ABOUT STICKING TO BASICS AND KEEPING OUR SENTIMENTS, GREED, FEAR IN CHECK AND AT BAY. MAINTAINING PATIENCE AT ALL TIME's AND IN ALL TYPE OF MARKET CYCLES TO ACHIEVE YOUR DECIDED GOALS AND R.O.I. REGULARLY. ONE SHOULD BE LOOKING TO MINIMIZE RISK AND MAXIMIZE COMPOUNDED RETURNS ON YOUR OVERALL NET WORTH OVER LONG PERIOD OF TIME WITH WHICH SHOULD ALSO TAKE IN ACCOUNT NET OF INFLATION AND TAXES REAL RETURN. STARTING EARLY, SYSTEMATIC INVESTING, ASSET ALLOCATION, RE-BALANCING PORTFOLIO, DISCIPLINE IN INVESTING, INCREMENTAL SAVINGS, LONG TERM INVESTING AND PROPER DIVERSIFICATION ETC. ARE SOME OF THE VERY IMPORTANT, KEY PARAMETERS AND INGREDIENTS OF ALL SUCCESSFUL INVESTOR'S WHO CREATE WEALTH AND BECOME RICH BY INVESTING!!! 

ALL THE BEST!

HAPPY INVESTING!!!

MANISH